Corporate Reporting
Open Book
1
,Table of Contents
Consolidation ....................................................................................................................................................... 4
Consolidated statement of financial position .................................................................................................................. 4
Consolidated statement of profit or loss .......................................................................................................................... 7
Consolidated statement of changes in equity ................................................................................................................ 10
Disposals ............................................................................................................................................................ 13
Subsidiary to Subsidiary.................................................................................................................................... 13
Financial instruments ....................................................................................................................................... 14
Financial asset classifications .........................................................................................................................................14
Business model test.......................................................................................................................................................................... 15
The contractual cashflows (“SPPI”) test .......................................................................................................................................... 15
Derecognition of financial assets .....................................................................................................................................................16
Sample Answer (Classification of assets under IFRS 9 – QB 1, 52)................................................................................................ 17
Financial Asset reclassifications .................................................................................................................................... 18
Embedded derivative .......................................................................................................................................................19
Sample Answer (Embedded derivative interest rate cap/floor – SM 296) ....................................................................................19
Financial liability classifications .................................................................................................................................... 20
Derecognition of financial liabilities................................................................................................................................................21
Sample Answer (Classification of liabilities under IFRS 9, QB 46) ................................................................................................21
Financial instruments: Fair Value ................................................................................................................................. 22
Valuation techniques (absence of Level 1 input) ............................................................................................................................ 22
Sample Answer (FV under IFRS 13, QB 1) ..................................................................................................................................... 23
Financial instruments: Impairment .............................................................................................................................. 24
Sample answers ............................................................................................................................................................................... 25
Hedging .............................................................................................................................................................. 27
Types of hedge accounting ............................................................................................................................................. 27
Fair value hedge .............................................................................................................................................................................. 27
Cash flow hedge .............................................................................................................................................................................. 27
Net investment hedge ..................................................................................................................................................................... 27
Reporting ........................................................................................................................................................................ 28
Discontinuance ............................................................................................................................................................... 28
Sample Answer (QB 57.2) .............................................................................................................................................. 28
Differences between IAS 39 and IFRS 9 ........................................................................................................................ 29
Interest rate risk ............................................................................................................................................................. 30
Audit and assurance ............................................................................................................................................. 31
Small/New companies ....................................................................................................................................................... 32
Risks ................................................................................................................................................................................. 32
Audit work ........................................................................................................................................................................ 32
First Time audit ................................................................................................................................................................. 35
Derivatives ........................................................................................................................................................................ 36
Hedge accounting.............................................................................................................................................................. 37
2
, Internal controls over clients’ assets .................................................................................................................................. 38
Embedded derivatives ....................................................................................................................................................... 40
Risks ..................................................................................................................................................................................41
Fee and commission income .............................................................................................................................................. 42
Trading portfolio - Trading desk ......................................................................................................................................... 43
Provisions and contingent liabilities ................................................................................................................................... 44
Audit approach..................................................................................................................................................... 47
Ethics .................................................................................................................................................................. 48
ICAEW Code of Ethics ........................................................................................................................................................ 48
FRC Ethical Standard.......................................................................................................................................................... 49
Questions Index (TBU) .......................................................................................................................................... 53
3
, Consolidation
Consolidated statement of financial position
£
ASSETS
Non-current assets
Goodwill (W3) x
PPE (x + y + FVadj – Acc. Dep’n) x
Investment in Associate (W7) x
Investments (x – Consideration paid in subsidiary & associate) x
Current assets
Inventories (x + y) x
Less: PURP (x)
Trade receivables (x + y – intra-group adjustments) x
Cash and cash equivalents (x + y – cash in transit Δ) x
TOTAL ASSETS X
EQUITY AND LIABILITIES
Equity
Share capital (P’s only) x
Share premium (P’s only) x
Retained earnings (W5) x
NCI (W4) x
Non-current liabilities
Borrowings (x + y – intra-group loan) x
Finance lease liability x
Current liabilities
Trade payables (x + y – intra-group transfers) x
Taxation (x + y) x
Deferred consideration (x + unwinding of interest) x
TOTAL EQUITY AND LIABILITIES X
W1 – Group Structure
4
Open Book
1
,Table of Contents
Consolidation ....................................................................................................................................................... 4
Consolidated statement of financial position .................................................................................................................. 4
Consolidated statement of profit or loss .......................................................................................................................... 7
Consolidated statement of changes in equity ................................................................................................................ 10
Disposals ............................................................................................................................................................ 13
Subsidiary to Subsidiary.................................................................................................................................... 13
Financial instruments ....................................................................................................................................... 14
Financial asset classifications .........................................................................................................................................14
Business model test.......................................................................................................................................................................... 15
The contractual cashflows (“SPPI”) test .......................................................................................................................................... 15
Derecognition of financial assets .....................................................................................................................................................16
Sample Answer (Classification of assets under IFRS 9 – QB 1, 52)................................................................................................ 17
Financial Asset reclassifications .................................................................................................................................... 18
Embedded derivative .......................................................................................................................................................19
Sample Answer (Embedded derivative interest rate cap/floor – SM 296) ....................................................................................19
Financial liability classifications .................................................................................................................................... 20
Derecognition of financial liabilities................................................................................................................................................21
Sample Answer (Classification of liabilities under IFRS 9, QB 46) ................................................................................................21
Financial instruments: Fair Value ................................................................................................................................. 22
Valuation techniques (absence of Level 1 input) ............................................................................................................................ 22
Sample Answer (FV under IFRS 13, QB 1) ..................................................................................................................................... 23
Financial instruments: Impairment .............................................................................................................................. 24
Sample answers ............................................................................................................................................................................... 25
Hedging .............................................................................................................................................................. 27
Types of hedge accounting ............................................................................................................................................. 27
Fair value hedge .............................................................................................................................................................................. 27
Cash flow hedge .............................................................................................................................................................................. 27
Net investment hedge ..................................................................................................................................................................... 27
Reporting ........................................................................................................................................................................ 28
Discontinuance ............................................................................................................................................................... 28
Sample Answer (QB 57.2) .............................................................................................................................................. 28
Differences between IAS 39 and IFRS 9 ........................................................................................................................ 29
Interest rate risk ............................................................................................................................................................. 30
Audit and assurance ............................................................................................................................................. 31
Small/New companies ....................................................................................................................................................... 32
Risks ................................................................................................................................................................................. 32
Audit work ........................................................................................................................................................................ 32
First Time audit ................................................................................................................................................................. 35
Derivatives ........................................................................................................................................................................ 36
Hedge accounting.............................................................................................................................................................. 37
2
, Internal controls over clients’ assets .................................................................................................................................. 38
Embedded derivatives ....................................................................................................................................................... 40
Risks ..................................................................................................................................................................................41
Fee and commission income .............................................................................................................................................. 42
Trading portfolio - Trading desk ......................................................................................................................................... 43
Provisions and contingent liabilities ................................................................................................................................... 44
Audit approach..................................................................................................................................................... 47
Ethics .................................................................................................................................................................. 48
ICAEW Code of Ethics ........................................................................................................................................................ 48
FRC Ethical Standard.......................................................................................................................................................... 49
Questions Index (TBU) .......................................................................................................................................... 53
3
, Consolidation
Consolidated statement of financial position
£
ASSETS
Non-current assets
Goodwill (W3) x
PPE (x + y + FVadj – Acc. Dep’n) x
Investment in Associate (W7) x
Investments (x – Consideration paid in subsidiary & associate) x
Current assets
Inventories (x + y) x
Less: PURP (x)
Trade receivables (x + y – intra-group adjustments) x
Cash and cash equivalents (x + y – cash in transit Δ) x
TOTAL ASSETS X
EQUITY AND LIABILITIES
Equity
Share capital (P’s only) x
Share premium (P’s only) x
Retained earnings (W5) x
NCI (W4) x
Non-current liabilities
Borrowings (x + y – intra-group loan) x
Finance lease liability x
Current liabilities
Trade payables (x + y – intra-group transfers) x
Taxation (x + y) x
Deferred consideration (x + unwinding of interest) x
TOTAL EQUITY AND LIABILITIES X
W1 – Group Structure
4
