The Financial Reporting (FR) exam aims to develop knowledge and skills in the understanding and application of accounting standards and the conceptual and regulatory frameworks of accounting for the preparation of financial statements of single and group entities. The analysis and interpretation of financial statements will also be tested.
On successful completion of the FR exam, candidates should be able to:
The FR exam builds on the knowledge and skills acquired from both Financial Accounting (FA) and Corporate and Business Law (LW). The FR exam will also provide the platform for progression to Strategic Business Reporting (SBR) where the content of the FR syllabus is assumed knowledge.
Not all IFRS Standards are examinable; the examinable documents for each exam are regularly updated and published on the ACCA website.
Some IFRS Standards are very detailed and complex and it would be inappropriate to expect candidates at this level to have a complete knowledge of such standards. Therefore, candidates will be expected to understand the main principles and objectives of IFRS Standards, and to be able to apply these when required.
Further important aspects of the syllabus are the conceptual issues and definition of the elements of financial statements that underpin IFRS Standards and generally accepted accounting principles. Much of the conceptual knowledge is to be found in the International Accounting Standard Board’s (IASB’s) Conceptual Framework for Financial Reporting (the Conceptual Framework). The role of the IASB (the Board) is an important element of the regulatory framework.
The concept of business combinations and the preparation of consolidated financial statements are also important elements of the FR exam. Accounting for business combinations can be seen as a progression from preparing the financial statements of a single entity. Questions on groups of companies can include subsidiaries and/or an associate.
It should be noted that joint ventures are not examinable in FR.
Candidates may observe that some accounting standards appear in all three financial accounting exams – FA, FR and SBR. This illustrates the relationship between the exams and reflects the continuity and progression of the syllabus. Where a topic appears in both FA and FR, any examination of that topic in FR will be at a more advanced level, requiring greater understanding and appropriately higher-level skills.
The final element of the syllabus is the analysis and interpretation of financial statements. Although candidates will be expected to calculate various accounting ratios, FR places emphasis on the interpretation of what particular ratios are intended to measure and the impact that consolidation adjustments may have on any comparisons of consolidated financial statements. The financial statements that require interpretation will include the statement of profit or loss, the statement of financial position and the statement of cash flows.
To summarise, candidates need to: understand the concepts underlying the preparation of an entity’s financial reports; apply their knowledge of IFRS Standards to prepare financial statements of both single and group entities; and finally, to demonstrate their analytical skills in the assessment of the financial statements of a single entity or a group and the accounting ratios that are derived from them.
Format and structure of the computer-based exam (CBE)
FR is assessed by a three-hour CBE which is comprised of three sections: A, B and C. All questions are compulsory. Some questions will adopt a scenario/case study approach.
Section A of the exam comprises 15 objective test (OT) questions of two marks each, representing 30% of the exam. There are no partial marks for OT questions. OT questions are not always the same as traditional multiple-choice questions (MCQs), although they could take the form of an MCQ. Candidates should ensure that they are familiar with the different styles of OT that may be used. A specimen exam is available on the ACCA Practice Platform and should be accessed via the ACCA website to ensure that candidates are well-practised before the exam.
Section B of the exam comprises three 10-mark cases. Each case has five OT questions of two marks, representing 30% of the exam. As with Section A, the OT questions could be presented in a variety of different styles.
Section C of the exam comprises two 20-mark constructed response questions which represents 40% of the exam. These questions are expert marked – all workings and calculations produced in the response options can be viewed by the marker.
Constructed response questions require candidates to produce individual narrative and/or numerical answers which they input into blank word processing pages or blank spreadsheets. A number of standard word processing and spreadsheet functions are available via the menu and tool bar for candidates to use when responding to the question.
One of the reasons for this format, particularly the use of the Section A and B OT questions, is to ensure that candidates adequately cover the whole of the syllabus. This is intended to counter what seemed to be a growing practice of many candidates only studying the ‘core’ topics.
Such a strategy is very short term and should be avoided; it does not provide the breadth of knowledge required for progression to the Strategic Professional level, nor does it provide the background knowledge required for workplace development and professional life as an accountant.
The 15 two-mark questions in this section can potentially test any area of the syllabus. They may be narrative or computational and can test both knowledge and application. The exact composition of the questions will depend on the other topics tested in the exam such that an overall balanced exam is achieved.
The three case questions in this section will each be based on a unique scenario and could also be set on any area of the syllabus. All five questions in each case might be related to a single topic area or a few syllabus topics might be contained in each scenario. However, the five questions are independent of each other so getting a question wrong will not affect the other responses within that case. These case questions allow syllabus topics to be examined in more depth than in Section A.
The constructed response questions in this section could also be set on any area of the syllabus. One 20-mark question will require the preparation of the financial statements of a single entity or a group, whereas the other will require the interpretation of the financial statements of a single entity or a group.
Section C questions on the preparation of consolidated financial statements will be largely computational but there may also be a short narrative element. Complete financial statements may be required or just extracts. Aspects of group accounting can also be examined in Sections A and B.
Important consolidation topics for candidates to be comfortable with include the concept of pre- and post-acquisition profits, calculation of goodwill and non-controlling interests, fair value adjustments and elimination of intra-group transactions.
Section C questions on the preparation of single entity financial statements are a good example of where several syllabus areas can be tested in a single question as such questions are likely to cover several IFRS topics.
Information provided in the scenario may be in the form of a trial balance (or extracts) accompanied by several notes that will need to be taken into consideration when preparing the financial statements. Topics that often appear in these questions include accounting for leases, the revaluation or impairment of non-current assets, financial instruments, taxation (including deferred tax) and calculating earnings per share.
Candidates may also be asked to comment on the appropriateness or acceptability of management’s proposed accounting treatment of a transaction or event.
Questions on the analysis and interpretation of financial statements of a single entity or a group may require the calculation of certain ratios prior to their analysis. Candidates should be prepared to interpret the comparative performance of a single entity or group over periods of time, one entity against a competitor entity or against industry sector averages. Candidates will need an understanding of how certain transactions or events, including consolidation adjustments, may affect a valid comparison.
Please remember the above is not an exhaustive list of the topics that may appear in Section C as virtually the whole of the syllabus may be examined here.
To ensure that candidates can concentrate on answering the question requirement, they should make sure that they are comfortable with the functionality of the response options in advance of the exam. Candidates should make use of the guidance on the ACCA website regarding CBEs and use the ACCA Practice Platform to access the specimen exam and extra constructed response questions to practice answering these types of questions.
We hope the above will be of assistance to candidates and tutors. This article should be read in conjunction with other related published material including the Syllabus and Detailed Study Guide, technical articles, examiner reports and past exams.
Written by a member of the Financial Reporting examining team