MY TIPS



June 2013 Exam Predictions

|Standard/Area |Qn. No |Reasons for expecting |Question outline and predicted elements (Questions are set at the Level 3 synthesis and |

| | |(You may wish to check previous examination predictions to assess the accuracy of predictions|evaluation intellectual level. Please therefore practise thinking hard at the appropriate |

| | |and reasons) |intellectual level. Rote learning will not be rewarded.) |

|IFRS13 |1,2 |New standard fundamental to measurement and disclosure. Has wide ranging impact including |SECTION A part a calculation of fair value. Part b discussion of fair valuation issues in |

| | |role in international convergence and conceptual framework. |a case study involving the issues below. |

| | |Critical to measurement of nonfinancial assets |Items expected: |

| | |Relevant to initial recognition under IFRS 3 |purpose and benefits of IFRS 13 (be specific) |

| | |Critical to initial recognition and subsequent measurement of financial instruments: IAS 32, |approach to measurement of fair value (discussion of all the features of the definition of|

| | |IFRS 9 |fair value and the requirements for fair value, including the effect of valuation |

| | |Critical to measurement of non-financial assets (the new concepts of highest and best use and|premise, non-performance risk, the concept of exit price and the implications of its |

| | |valuation premise) |requirements for transfer and settlement of liabilities and equity: analysis, synthesis |

| | |Interaction with IFRS 3 a major standard popular with the examiner in relation to measurement|and evaluation) |

| | |of fair value of the acquirer’s interest in the assets, liabilities and contingent |initial recognition and day one gains and losses |

| | |liabilities of the acquiree |case study involving “highest and best use” |

| | |The examiner was not happy with the December 2012 response: “…candidates struggled to |case study involving determining fair value in an advantageous or principal market |

| | |produce meaningful answers. It appears as though there was little understanding of the |calculation involving impact of IFRS 13 on liabilities |

| | |principles in the standard.” Examiners Report December 2012. IFRS 13 fair value is widely |application of the fair value hierarchy on real estate (IAS 40), liabilities (IAS 39, IFRS|

| | |used. Poor performance is likely to prompt the examiner to ask questions again in 2013 June |9) |

| | |and December. The questions will get more challenging with computational components alongside|valuation technique issues (inputs to reflect market participants assumptions, reflect |

| | |the discursive elements. The examiner is likely to examine IFRS 13 in the compulsory Section |characteristics of the product, level of hierarchy, maximize observable, minimize |

| | |A parts a and b in June 2013 involving examples of fair valuation probably nonfinancial |unobservable inputs) |

| | |assets and again in section B case study. |Disclosures (benefits of additional disclosures; based on lowest level input that is |

| | | |significant to fair value measurement. Why is this desirable? What is the accounting |

| | | |principle in action?) |

| | | |Other application issues: i) Adjustments; ii) Restrictions |

| | | |Multiple valuation technique: evaluating the most representative fair value. |

|IFRS 12 |1b,c |All entities are affected by the new standard |Explain the benefits of the additional disclosure generally and specifically |

| |2,3,4 |Its benefits are linked into the requirements to improve transparency, |Examples of critical disclosures beneficial to investors |

| | |It enhances the ethical position of the accountant | |

| | |It expresses IAS 1 requirement for financial statements to present information that is | |

| | |relevant and useful to its users | |

| | |Chimes with IFRS 13 disclosure requirements | |

|IFRS 11 |1, 2, 3 |Increasing importance of disclosure as a way of improving quality of financial reporting |Change of structure |

| | |New standard, very important concepts |Industry question |

| | |Case study involving giving advice | |

|IFRS 10 |1, b, c |New standard introduces changes to a critical matter such as control that determines whether |Discussion (case study) involving deciding whether control exists and the implications for|

| | |or not an entity should be consolidated. |consolidation. |

| | |Case study type question (involving control and consolidation) has not been examined since…. | |

| | |This is an opportunity for the examiner to examine this issue in part b or c of Question 1. | |

|IFRS1 |1b,c |According to the examiner this is highly topical because of the increasing pace of switching |Computational question expected in part A, q1 b, c or |

| |2 |to IFRS. The examiner is an enthusiast for IFRS (see workbook). |Specialist 25 mark question in part B with discussion (q2) |

| | |Last examined in June 2011 but poorly answered |Could be part of an industry question. |

| | |Multiple standards in the same question e.g. IAS 16, IFRS 13, IFRS 3, IAS 40 |Expect full (or part) computational questions this time. (See examiners workbook) |

| | | | |

| | | |Sources of practice questions: |

| | | |p429 Mirza (adjustments required in preparing the opening IFRS SOFP), e.g. dividends (IAS |

| | | |10); advertising (IAS 38); capitalised costs (IAS 16); revenue (IAS 18); |

| | | |p434 Mirza, (deemed cost options) e.g. |

| | | |p443-4, Mirza (adjustments and equity valuation) |

| | | |Objective questions |

| | | |Impairment testing of goodwill on 1st time adoption p223, v1 E&Y |

|IAS 8 |1,2 |Mandatory changes to accounting policies because of the impact of IFRS 13, 10, 11, 12 |Make sure you are clear about the critical requirements for |

| | |This is a standard that addresses changes that are prevalent in any accounting system. |change in accounting policy (mandatory, voluntary) |

| | |Therefore should be expected in every diet. It is only the scope that changes and the mark |change in accounting estimates (new information, new development) |

| | |allocation. |errors (discovery of errors in previous periods) |

| | |This time expect at least 8 marks involving retrospective restatement, deemed disposal, | |

| | |contingent consideration in addition to the change in accounting policy mandated by the |Apply IAS 8 guidance in determining accounting treatment of items for which an accounting |

| | |introduction of new standards. |standard does not exist. |

|IFRS 5 |1,3 |- Opportunity to examine IFRS 13 |- See Case study in Mirza |

| | |- Not examined recently (last examined June 2010 – part of a discussion for 8 marks) |- See PWC example |

| | |- Interaction with other standards e.g. IAS 36, IFRS 10, IAS 16, IAS 40 |- Focus on reversal of impairment losses (up to maximum of the losses recognised except |

| | |- Interpretation of performance EPS calculation. |for goodwill) |

| | | |- Distinguish between trading loss and impairment loss |

|IFRS 8 | |Has recently undergone post-implementation review (PIR) | |

| | |Topical because of potential abuse of transfer pricing between segments | |

|IAS19 |1,2 |- New changes to be implemented |See workbook (excel illustrations) |

| | |- Examined in every diet |Performa all the calculations repeatedly. |

|IAS 37 |1,2,3 |- Key standard has wide applications |Calculations |

| | | |Discussions |

|IAS 40 |1,2,3 |- Apply IFRS 13 in determining impairment |Calculate gain or loss for part A |

| | |- Apply IFRS 13 in determining gain or loss on sale |Discuss treatment of sale and lease-back transaction and recognition of gains or losses |

| | |- Interaction with leases IAS 17 (sale and lease back) |(revise) |

| | |- Interaction with IAS 17 (sale on grant of an operating lease) |Discuss and account for treatment of compensation from 3rd parties e.g. insurance |

| | |- Interaction with IFRS 5 e.g. December 2005 q3c (M Jones article) |Application of fair value hierarchy in measurement of fair value |

| | |- Fair value hierarchy (discuss how it applies to real estate) |Could be part of a medley with IAS 16, IAS 17 (with ED) as in the “industry question” |

| | |- Adjustments to observable and unobservable data | |

|IAS 16 |1,2,3 |Key standard: examined frequently |See separate spreadsheet analysis of past questions |

| | | |Could be part of a medley with IAS 40, IAS 17 (with ED) as in the “industry question.” |

|IAS 32, 39, IFRS 9 |1, 2,3 |ED on hedge accounting |Derivatives |

| | |Not examined derivatives since Dec 2010 |Hedging: fair value and cash flow hedge |

| | |The examiner is highly committed to FI |Specific examples |

| | |Has not examined as 25 mark questions since June 2011. |ED issues. |

| | | |Split accounting re Financial liabilities |

| | | |Reclassification (from fair value to amortised cost) |

|IAS 17 & ED |1 b, c 2, |ED re-exposed: may be required to discuss aspects of ED involving measurement of lease asset |Because a major question was asked (Q4 June 2010 25 mks.) before the 1st version of the |

|Correct prediction, |3 |Significant potential changes in the pipeline (and benefits in terms of relevant and useful |ED2010/09 was issued (August 2010) and because the ED has been re-exposed (December 2011) |

|q2a 7mks | |information, consistency and comparability between entities) |it is not expected that a full 25 mark question will be asked in June 2012 (given the |

| | |Example of how to use the conceptual Framework to resolve accounting issues: i) Justify |recent issue of four fully completed standards all of which are examinable in June 2012.) |

| | |capitalisation of operating lease rental; ii) Justify recognition of right- of- use asset in | |

| | |relation to the optional period (where there is no legal right to use the asset); iii) |Nevertheless, the significance of the topic warrants certain elements of the ED |

| | |justify recognition of matching of right-of-use obligation |(re-exposed) to be examined, inviting students’ contribution to the discussion of |

| | | |contentious issues. These normally relate to recognition and measurement issues. Refer to |

| | | |workbook for illustration and practice. |

| | | | |

| | | |For 2012 there would be a need to examine what progress has been made so far and how? Be |

| | | |able to discuss |

| | | |What is the big picture regarding lease accounting improvements? |

| | | |What remains to be accomplished? |

| | | |What are the problems in the way of achieving closure on a new IFRS? |

| | | |How does the setting of the new standard illustrate the new principles based approach? And|

| | | |how does this justify the need for a conceptual framework? |

| | | |How does the setting of the new standard illustrate the need for a conceptual framework? |

| | | |How does the setting of the new standard address the current issues in financial |

| | | |reporting? Convergence, consistency, cost, visibility (risk, finance, investment). |

| | | |A question on the conceptual Framework could be linked to leases as an illustration of how|

| | | |having a Framework leads to efficient standard setting using leases, IFRS 13, IAS 12, etc |

| | | |as examples. There is also the possibility of a question that combines lease and revenue |

| | | |(requiring separation using relative purchase prices, calculation and explanation) |

|IFRS 2 |1,2, 3 |Key standard involving employee remuneration and compensation |All the calculations including deferred tax |

| | |Can be mixed with deferred tax (IFRS 2), provisions (IAS 37) |Distinguish between share based and normal types of payments |

|IAS 12 Deferred tax |1,2,3 |a key standard that is involved in every transaction including revaluation, business |Calculation of provisions |

| | |combinations and share based payments |Accounting for share based payments |

| | | |Consolidations |

| | | |Business combinations and goodwill |

|Framework |1,b,c |New Conceptual Framework is required to underpin IFRS as a result of convergence of IFRS and |Explain with examples, why a Framework would be useful to convergence (of international |

|Dec 2007 q4 conceptual| |USGAAP. (In September 2010 the IASB and the USGAAP approved chapters 1 and 3 of the 2010 |standard setting) |

|Framework. | |Conceptual Framework) |Address current issues around Framework: e.g. “management commentary” (guidance published |

| | |Existing frameworks are to be revised to integrate and harmonise IASB and FASB frameworks to |Dec 2010) |

| | |produce the new international Framework |Address current challenges around the Framework: e.g. “measurement”, “reporting entity”, |

| | |Phase C – Measurement is still to be completed. |“cost constraint”, conflict between needs of “users” and “preparers” of financial |

| | |The new Framework itself has been expanded. The new sections are: i) Objectives and |statements. |

| | |qualitative characteristics; ii) Definition of elements, recognition and derecognition; iii) |How can the Framework be used to address criticisms about the lack of focus and the volume|

| | |Measurement; iv) Reporting entity concept; v) Boundaries of financial reporting presentation |of disclosure in the standards? E.g. “…to develop principles for presentation and |

| | |and disclosure; vi) Purpose and status of the framework; vi) Application of the framework to |disclosure” (principles-based approach) |

| | |not-for-profit; vii) Remaining issues (if any) | |

|IAS 7 |1,b,c |The pattern of examination is a two-year interval (having been previously examined in Dec |What type of transactions and issues are examined through cash flow and why? E.g. deferred|

| | |2010 and Dec 2008). |tax, disposal of assets, investments, issue and redemption of shares, etc. |

| | |However, the critical importance of cash flow in this economic climate makes this a highly |The impact of improvements e.g. IAS 19 (2011) may be tested |

| | |probable topic |Assess the likely impact of leasing (and the impact of ED 2010/09) |

| | |The examiner can combine consolidated income statement and cash flows. |Assess the impact of conversion of preference shares and convertible bonds |

| | |The examiner can test interpretation and evaluation skills directly, involving ratio |The effect of group items: |

| | |analysis, EPS. These have not been tested since December 2007. |Evaluate cash flows in particular sections e.g. investing, financing, etc, in terms of the|

| | | |overall financial health of the entity and of the usefulness of the information. |

| | | |Interpretation of pattern of cash flows See q1b (Dec 2010) and q1b (Dec 2008). |

| | | |What are the weaknesses of the cash flow statement? |

|The appraisal of |4, 2,1b,c |Appraisal is of critical importance, being based on the final output from the accounting |Management commentary (how is the business executing its strategy and is it succeeding or |

|financial performance,| |information systems and it is intended for users for whom the preparers are acting as agents.|not?) |

|position and cash | |Assessing fitness for purpose focuses attention on the entire process of producing the |Presentation skills (particularly in advice questions: attention to structure, clarity of |

|flow. | |information: recognition, measurement, presentation and disclosure. Hence the importance of |arguments based on quality of insights evidenced by accurate knowledge of principles, |

| | |considering the qualitative characteristics which are substantially influenced by the choice |business performance and appraisal issues) |

| | |of accounting policies and significant judgements and assumptions of the management. |Demonstrate awareness of the context in which the entity operates and the impact on |

| | |Interpretation of the information is an essential function of the accountant. This should not|performance of such contextual factors as i) the economic outlook, ii) factors affecting |

| | |be treated as a mechanised routine. It is communicating insightfully, the key information |the sector, iii) factors specific to the business e.g. growth, decline, competition |

| | |about the results, the position of the entity’s finances and of its cash flows. It must be |Demonstrate awareness of the risk of “management of earnings” motivated by i) market |

| | |approached as a creative exercise that aims to add value to users of financial information. |pressures, ii) contractual performance pressures, iii) personal motivation e.g. bonus |

| | |Therefore it is essential to relate the analysis and interpretation to the objectives of the |incentives linked to earnings |

| | |users. |The context determines the priority: what would you say is the priority of the entity |

| | |Gaining insight entails understanding the relationships between all the financial statements |given the context? How do the financial statements figures and narrative commentaries |

| | |and what underlies those relationships: i) How does profit or loss relate to cash flow? ii) |reflect that? |

| | |What determines the financing needs of the business (long term and short term)? iii) What |If there is no alignment then you should bring that out in the analysis and |

| | |determines how the business is financed? iv) How soundly is the business being financed? v) |interpretation. |

| | |Is the business achieving its objectives for stakeholders? vi) What financial and |In execution, whether in growth, crisis management or steady state management, speed is of|

| | |nonfinancial indicators best depict the performance of the entity to satisfy the needs of |the essence. How does the speed of management action come through in the figures? E.g. is |

| | |users? |cash flowing in as quickly as is required to meet obligations? Are (fixed) costs being |

| | |The prevailing unstable economic climate means that appraisal becomes topical as risks move |reduced quickly enough to stem losses? How much time has the entity got? |

| | |front and centre in the management of the entity: business risk (inherent in the way that the|Adjusting the earnings and number of shares used in the diluted EPS |

| | |business model delivers value), operational risks (inherent in the way that the value | |

| | |delivery is being supported e.g. through logistics), financial risks (inherent in the way | |

| | |that the business is financed e.g. forex risk hedged by fwd exchange contracts) | |

| | |Convergence imposes a need to reassess and define performance indicators that are acceptable |Sources of practice |

| | |and suitable for use in international capital markets for evaluation of alternative |E&E q3 pp700-701 |

| | |investment options based on predictions of future earnings and past performance. Universal |E&E q5 pp702 |

| | |definitions of concepts, terminology and norms used in ratio analysis would be helpful in |E&E q7 |

| | |interpretation of performance. | |

| | |Opportunity to test a variety of standards and adjustments e.g. share options, new pension | |

| | |recognition rules under IAS 19 (2011), deferred tax, provisions, etc. and to assess their | |

| | |impact on EPS, ROCE | |

|Developments in | |Technology and efficiency issues e.g. iXBRL | |

|Financial reporting | | | |

| | |The paper focuses on the following topics/issues: | |

| | |the nature and classification of permits | |

| | |recognition of a liability for emissions | |

| | |recognition of a liability on receipt of free permits | |

| | |capitalisation or expensing of carbon tax | |

| | |accounting for free permits in the Australian context | |

| | |presentation of assets and liabilities | |

| | |accounting for 'Australian Carbon Credit Units' (ACCUs) | |

| | |impairment | |

| | |accounting for shortfall charges | |

| | |onerous contracts and existing provisions | |

| | |the impact on income tax. | |

|KEY TO QUESTIONS |

|Q1a: Group with other standards | |

|Q1b: | |

|Q1c: | |

|Q2 Specialist topic e.g. Group restructuring (Dec 2011) | |

|Q3 Industry question: a topic (e.g. intangibles Dec 2011) is| |

|explored through an industry | |

|Q4 Developments in financial reporting (Dec 2011: revenue | |

|recognition issues) | |

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|MOCK 1 |Q1 ACCA Dec 2008 |

| |Criteria for assessing strength of entity’s balance sheet and cash flow: |

| |Ability to generate and sustain cash flows to meet immediate needs and for investment |

| |Operating cash requirements met by cash generated from operations? |

| |Matching financing needs to type of finance e.g. current liabilities financed by working capital |

| |Long-lived assets financed by short-term finance raises questions. |

| |Changes in cash flow pattern e.g. release of working capital: discuss the implications (focus on what it was used for.) |

| |Trends: sustainability |

| |Key ratios e.g. liquidity ratios, current ratios. Turnovers (asset, stock, |

| |Q2 ACCA Dec 2008 |

| |Q3 ACCA Dec 2007 |

| |Q4 Own questions IFRS 13 Fair Value measurement |

|MOCK 2 | |

| |Q1 ACCA Dec 2010 |

| |Q2 ACCA June 2009 |

| |Q3 ACCA Jun 2010 |

| |Q4 Assortment of ED and new Standards (own questions) |

- Principles, practices and transactions

- The meaning of conceptualised understanding (examples from past papers)

- Organised and focussed questions

-

List all group transactions and address them all.

Relate them to the recent past questions analysis highlighting the principles and issues. Suggest learning strategy.

Explain what the examiner is testing and why. Then design practice to hone those skills.

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|Review question 1b, c. Consider implications for learning and practice |

|how to discuss (a step-by-step structured approach that ensures every aspect of the capability is mastered) |

|how to learn for versatile application (method, conditioning and application) |

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|Resources |

|IASB workplan | |

|CICA | |

|aus | |

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|WHAT STUDENTS SAY & teachers say |

|Well like ever take all tips with a pinch of salt!  |

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|But  |

|preparing for ACCA P2 in 2012 definitely requires  |

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|1. Full knowledge on IFRS10/11/12  |

|Expect a full question that gives an Enron type scenario with a company using 'off balance sheet vehicle' companies, including those that they have set up or sponsored.  |

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|Expect to advise the company on the implication on their accounts for the introduction of IFRS 10,11 and 12 including the application of 'power to control', 'exposure or rights to variable returns' and the |

|ability to use power.  |

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|This could be a full section b 25 marker with a number of transactions or a single transaction in section A as part of the consolidation  |

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|Section A  |

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|The section A question will depend on the IFRS 10/11/12 question - if it comes up in section B it makes a cash-flow likely for the compulsory (to keep the balance over the paper)  |

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|If IFRS 10/11/12 is in section A then it will likely be a consolidated comprehensive income statement  |

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|Basically in 2012 I believe there will be one cash flow and one income statement - I'm leaning towards cash flow for June. If its an income statement expect a foreign subsidiary  |

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|Hedge accounting is very likely  |

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|Cash flow hedge for OCI or current issue based on ED 2010/13  |

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|IFRS 13 very likely current issue or part A written  |

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|Transactions tipped  |

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|Cash flow hedge  |

|Re-measurement gain on defined benefit pension scheme  |

|FVTOCI financial asset  |

|Revaluation (probably reversal of previous impairment loss)  |

|Restructuring provisions  |

|Curtailment on pension scheme  |

|Held for sale  |

|Restructuring of individual co balance sheet due to accumulated loss  |

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|Ethics  |

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|Hope that helps  |

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|Clare |

|ACCA STUDENTS- LINKED IN |

|Q1: B/S, I/S OR CFS. |

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|Q2: DT, FI, Pensions, NCA |

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|Q3: Usual mix |

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|Q4: Group relationships (IFRS10, 11, 12), FVM (IFRS13), leases & CSR. |

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|BTW, I just realised what the guess predicted. I thought they said CFS but apparently it can be any.. Sorry about that. :/ |

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|If that's the case, then judging from the pattern you shared it seems as though an I/S could come since it hasn't been tested for a long time.. But then who knows right? |

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|Ifrah Mahmood • I only want to give two, but I've signed up for four :(  |

|What about you?  |

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|Yeah that's what most people do - try to ace part A. If you're good at consolidation (all F/Ss) then it shouldn't be a problem IA.  |

|I personally enjoy theory more than accounting numericals. I mean mathematical numericals are one thing, but a/c numericals.. Hmm not my favourite. |

|What do you expect to be tested in Part A for P2? ... Any trend you came up with? ... |

|This is the pattern for Part A: |

|2011 Dec- SoFP |

|2011 June- SoFP |

|2010 Dec- CF |

|2010 June- SoCI |

|2009 Dec- SoFP |

|2009 June- SoFP |

|2008 Dec- CF |

|2008 June- SoFP |

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|I think it will be SoFP ... Any guesses for Part B? |

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|Salman Nymulla Asadulla • I just want to smash Part A, giving me more chances of clearing P2 by attempting 50 mark question with full knowledge of it. Insha Allah it should be fine.  |

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