F1, F2 and F3 Changes due in Dec 2011 Exams

orange juice from Bali

There will be changes to almost all exam papers effective Dec 2011 exams.

That would mean you have 2 paper-based tries based on current exam format left before the change.

So what are the changes due for F1, F2 and F3?
In short, the exam format will change from a pure multiple choice question (MCQ) format to a combination of MCQ and short questions basis format.

Paper F1, Accounting in Business
Section A - 16 x one-mark short objective test and 30 x two-mark short test questions.
Section B - 6 x four-mark longer version objective questions with one taken from each objective test questions of the six sections of the syllabus.

Paper F2, Management Accounting
Section A - 35 x two-mark short objective test questions
Section B - 3 x 10-mark longer version objective test questions – one taken from each of the budgeting, standard costing and performance measurement sections of the syllabus.

Paper F3, Financial Accounting
Section A - 35 x two-mark short objective test questions
Section B - 2 x 15 mark longer version objective test questions with one question based on group accounts and the other on preparation of financial statements (which may include an element of interpretation of accounts)
[Edgar says it looks like old topics will be re-introduced to the syllabus.]

Source - ACCA

Capture Theory

roaring biz

I am required to explain Capture Theory in my coming 3rd year class on Accounting Theory. The theory is used to explain the necessity of regulation in the disclosure of accounting information and the dynamics between the Regulator and the regulated.

What is Capture Theory?
The regulated party seeks to take charge (capture) of the Regulator with the intention that the rules subsequently released by Regulator will be in favour of the regulated party.

In more human language, I would paraphrase by saying, "Those people you are out to control in the first place, actually taken control of you."

Can Edgar relate the Theory to some real life applications in Singapore context?
National Wage Council is a tripartite entity made up of the employers, the union representatives and the Government. A tripartite entity would ensure nobody get "captured".

Under Code of Corporate Governance, the Board of Directors are required to be represented by independent directors too. Whether the independent directors are "captured" by directors who are in executive positions/representing majority shareholders are less clear and it varies from company to company.

In the recent ACCA conference, there was a rallying call from a leading accounting professional from Malaysia to fellow professionals and interest groups in this region, to speak up and participate actively in the IFRS standard-setting process. I guess this is ensure that IFRS put into law are not "captured".

ACCA Conference 2008 - A Summary

My summary may not do justice to the quality and quantity of information being delivered by the many distinguished speakers from 9am to 5pm. As the Chairman of the afternoon session, I must admit that I tried to absorb as much as possible. The end result is that I have learned something more than at the beginning of the day. I am sure about 400 people who attended the conference too will agree with me.

Dato' John Raslan, Exec. Chairman of PWC Malaysia

• He is for convergence of IFRS.
• But he urged all of us to participate actively in the convergence process whether at national or international level.

Mr Barmaky, Partner, Deloitte & Touche

• He gave us a macro review of FRS changes to date and changes to come at IASB level.

Mr Tirumalai, Oracle

• He briefed us on a solution in the form of platform which can enable us to implement the standards.

In the panel discussion chaired by Professor Pearl Tan of SMU, the following are my general feel of the panelists

• Fair value should not be blamed for the current state of financial turmoil.
• Global standards should not be tweaked too much to accomodate local market needs and culture as differing standards may lead to greater uncertainty to practitioners.
• How can our voice from this region be heard in between the dominating noises from Europe and US?
• FRS on SMEs/Private Entities - As there are significant differences between big and small business entities, they should thus be treated separately as apples and oranges.
• Should we take on other non-FRS standards on board? - Officially perhaps no but there are invisible forces moving business entities towards taking on non-FRS stds like Corporate Social Responsibility (CSR) in their reporting.

Mr Kon Yin Tong, Partner, Foo Kon Tan Grant Thornton
He gave us a rundown of the many FRSs due for implementation in 2009.

Mr Tham Sai Choy, Partner, KPMG, spent "5 minuates" telling us about Clarity Project and possible implications to the audit committees.

Mr Sum Yee Loong, Partner, Deloitte & Touche explained why IRAS has collected more billions than expected (just kidding) and shared another billion ideas for us to be more tax efficient.

Ms Kala Anandarajah, Partner, Rajah & Tann gave us a lengthy review of 2 cases on auditor's responsibility and director's responsibility.

Finally, I reached the end of the conference, exhausted with adrenalin still pumping for many hours after.

FRS 18 Revenue

a marriage contract in progress

Hi AWE readers,

In the Exposure Draft of Proposed Improvements to FRSs expiring Oct 3, 2008, I wish to share an interesting portion where ASC proposes guidance on determining whether an entity is acting as a principal or as an agent.

What is the big deal?
The clarification of the status of either principal/agent will determine how much of an invoice/contract you would record as your company's turnover.

Allow me to illustrate
Let assume an IT system integrator has got a contract to deliver the following:-
1. Ten servers and 100 laptops - $3 millions
2. Consultancy service (including set up and integration) - $0.5 million

Upon completion of the contract, how much should the IT company record as its Sales Turnover? It could be just $0.5 million or seven times more ie. $3.5 millions. So which is it?

Key point
FRS 18 requires you to determine whether you are acting as a PRINCIPAL or as an AGENT.

ASC is proposing the following for adoption to help you.

When is an entity acting as a PRINCIPAL?

1. the entity has the primary responsibility for providing the goods or services to the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer;
2. the entity has inventory risk before or after the customer order, during shipping or on return;
3. the entity has discretion in establishing prices, either directly or indirectly, for example by providing additional goods or services;
4. the entity bears the customer’s credit risk.

When is an entity acting as an AGENT?

1. An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. One feature indicating that an entity is acting as an agent is that the amount the entity earns is predetermined, being either a fixed fee per transaction or a stated percentage of the amount billed to the customer.

Source - ED - Proposed Financial Reporting Standard (Oct 3, 2008), ASC

FRS 38 Intangible Assets - Summary

An intangible asset is recognised at cost if and only if:-

1. the asset meets the definition of an intangible asset;


2. it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and


3. the cost of the asset can be reliably measured.

Internally generated goodwill, brands, mastheads, publishing titles, customer lists and similar items are not recognized as assets. Intangible items that do not meet the criteria for recognition as an asset is recognized as an expense when incurred. Expenditure that was initially recognised as an expense is not included in the cost of an intangible asset at a later date.

Research Phase
Expenditure on research is recognized as an expense.

Development Phase
Intangible asset arising from development is recognized only if an entity can demonstrate all of the following criteria in getting the intangible asset ready either for use or sale:-
(a) the technical feasibility of completing the intangible asset;
(b) its intention to complete the intangible asset;
(c) its ability to use or sell the intangible asset;
(d) how the intangible asset can generate probable future economic benefits;
(e) the availability of adequate technical, financial and other resources to complete the development; and
(f) its ability to reliably measure the expenditure due to the intangible asset during its development.

Subsequent to its initial recognition, an intangible asset is carried at:
(a) cost, less accumulated amortisation or impairment losses; or
(b) revalued amount (fair value at the date of revaluation), less any subsequent accumulated amortisation or impairment losses.

An entity shall assess whether the useful life of an intangible asset is finite or infinite. The useful life is infinite if there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. An intangible asset with infinite useful life is not amortised but is tested for impairment at least annually. The depreciable amount of an intangible asset with finite life is amortised on a systematic basis over its useful life.

Gain/loss on derecognition of an intangible asset is the difference between the net disposal proceeds and the carrying amount of the item. The gain/loss is recognized in the profit or loss.

Source - ICPAS ePublication Issue 25/2006 20 Jun 2006

FRS 37 Provisions, Contingent Liabilities and Contingent Assets - Summary

The objective of FRS 37 is to prescribe the accounting standards and disclosure for provisions, contingent liabilities and contingent assets.

A provision is a liability of uncertain timing or amount.

We recognise a provision when:-
(a) an entity has a present legal or constructive obligation as a result of a past event;
(b) it is probable that an outflow of economic benefits will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation

A constructive obligation is an obligation where the entity, through its actions, has indicated to other parties that it will accept certain responsibilities and as a result has created an expectation that it will discharge those responsibilities.

Provision is the best estimate of the expenditure required to settle the obligation at the balance sheet date. Provision should be reviewed and adjusted to current best estimate at each balance sheet date.

A constructive obligation to restructure arises only when an entity has:

• a detailed formal plan for restructuring; and


• raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

A contingent liability is not recognised, but is disclosed unless the possibility of an outflow of resources is remote.

A contingent asset is not recognised, but is disclosed when an inflow of economic benefits is probable.

FRS 37 specifies disclosures about provisions, contingent liabilities and assets.

Source - ICPAS ePublication Issue 23/2006 13 Jun 2006

FRS 16 Property, Plant and Equipment - Summary

FRS 16 prescribes the accounting treatment for property, plant and equipment.

Property, plant and equipment are tangible assets that are in use for more than one accounting period. Cost of property, plant and equipment comprise:-

1. its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
2. any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
3. the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purpose other than to produce inventories during that period.

Property, plant and equipment are initially recorded at cost. Subsequently, they can be carried either

1. Cost less any accumulated depreciation and any accumulated impairment losses; or
2. Revalued amount (Fair value at the date of revaluation), less any accumulated depreciation and any accumulated impairment losses.

If option (b) is chosen, all assets within a class of property, plant and equipment must be revalued and the valuations must be updated regularly.

A revaluation increase shall be credited directly to equity as revaluation surplus, unless it reverses a revaluation decrease of the same asset previously recognized in profit or loss.

A revaluation decrease shall be recognized in the profit or loss. However, the decrease is debited directly to revaluation surplus in equity to the extent of the credit balance in revaluation surplus.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The residual value and the useful life of an asset should be reviewed at least at each financial year-end. If expectations differ from previous estimates, (FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors) is applied.

Impairment is recognised in accordance with FRS 36 Impairment of Assets.

The gain or loss on the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is included in the profit or loss.

FRS 16 specifies disclosures about property, plant and equipment.

Source - ICPAS ePublication Issue 3/2006 17 Jan 2006

As a new accountant.. Part C

Good morning, I wish to focus on Accounting Estimates and the need to review them for bias.

I participated in a few rounds of discussion with a client recently on the basis of estimates done for various balance sheet items.

On occassions, you could be in a position where you could be pressured to accept the basis amd thus values of estimates and pass the necessary entries to reflect them on the balance sheet.

How would resolve the situation without losing your job?

As a new accountant.. Part B

the railway station

I wish to focus on journal entries and other adjustments today.

• We need to have some understanding of the whereabout of key controls over the recording and processing of journal entries.

• Keep an eye on material journal entries and other adjustments at end of reporting period during the course of preparing the financial statements. Eg. top-side entries, consolidating and eliminating adjustments and other closing journal entries such as reclassifications.

• Is there a specific file holding journal entry vouchers with proper authorisation?

As a new accountant.. Part A

things people will do for their business

When one is hired/appointed to a new position in a new company, please keep your eyes and ears open to the following areas when you are being briefed on your new responsibilities by your new colleagues.

1. You should obtain an understanding of the business and its environment.
2. You should obtain an understanding of the business's accounting processes.
3. Are there opportunities that controls may be incomplete, non existent or overrided?
4. What is the money flow for the business? Follow the money!
5. Focus on other key areas of potential risks in journal entries, accounting estimates and significant transactions.

Be careful.

Financial Reporting Process (FRP)

a wall of orchids.. not china wall

What is FRP?
Essentially FRP is the processes, procedures and controls that the management rely on in doing the following tasks:-

• performing accounting period close
• preparing the financial statements
• reviewing and approving the financial statements

We need an understanding of how key judgements are made.

Why is understanding the FRP critical to Audit or to you, a newbie Accountant joining the management team in a new company?

• FRP is where management is more likely to manipulate the financial statements. It is often more difficult to manipulate routine transaction entries.
• FRP forms the foundation for other systems and processes within the company.

As a new management staff, while it may take some time before you get a complete feel of the decision process, it is also utmost critical that you get to know it soon. Why? You are responsible for all things big and small from the first day you start work in that office.

Take care.

FRS 10 Events after balance sheet - Summary

Events after the balance sheet date are those events, favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Two types of events can be identified:

(a) those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); and
(b) those that are indicative of conditions that arose after the balance sheet date (non-adjusting events after the balance sheet date).

Things you got to know for FRS 10:-

• When are financial statements authorised for issue?


• Can you name some examples of adjusting events?


• Can you name some examples of non-adjusting events?

FRS 7 Cash Flow Statements - Summary

FRS 7 prescribes the principles in preparing cash flow statements.


The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.


Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

a) direct method (disclosure of major categories of gross cash receipts and payments); or

b) indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.


Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.


"Do you know the definition of "cash and cash equivalents"? Can you name some examples of cash equivalents?", ask Edgar.


Source - ICPAS ePublication 22 November 2005 Issue 11/2005

FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Summary

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

Changes in accounting policies
An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entities financial position. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates
Changes in accounting estimates should be recognised prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognised by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Errors
Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS 8 also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

What is prior period errors? When did an error occur?

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:-

• was available when financial statements for those periods were authorised for issue; and


• could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Source - ICPAS ePublication 29 Nov 2005 Issue 12/2005

FRS 2 Inventories - Summary

Objective
FRS 2 provides guidance on the determination of cost of inventories and its subsequent recognition as an expense, any write down to net realizable value.

FRS 2 applies to all inventories except for:

a) WIP under construction contracts;
b) Financial instruments; and
c) Biological assets related to agricultural activity produce at the point of harvest.

Inventories are measured at the lower of cost and net realisable value (NRV).

• NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and costs necessary to make the sale.
• Cost of inventories comprise of cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Three methods of costing inventories are specified under paragraph 23-27 of FRS 2.

i) Specific identification of costs method

ii) First-In, First-Out (FIFO) costs method

iii) Weighted average costs method

FRS 2 requires that the amount of write down of inventories to NRV is recognised as an expense in the period the write down or loss occurs. Any reversals of the write down, as a result of increase in NRV, is recognised as a reduction in amount of inventories recognized as an expense in the period the reversal occurs.

FRS 2 also specifies the disclosures required of inventories.

Source - ICPAS ePublication

FRS 1 - Presentation of Financial Statements Nov 2005

Objectives

1. To prescribe the basis of presentation of general purpose financial statements and;
2. To ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

• Fair presentation and compliance with FRS

A faithful representation of the effects of transactions, events and conditions in accordance with the FRS.

• Going concern

Preparation of financial statements with the assumption that the business will continue indefinitely.

• Accrual basis of accounting

A method where income and expense items are recognized and recorded when income is earned and expense is incurred, regardless of when cash is actually received or paid.

• Consistency of presentation

Presentation and classification of items in financial statements are retained from one period to the next unless the standard requires a change in presentation or there is a significant change in the nature of the entity's operations, such that another presentation would be more appropriate.

• Materiality and aggregation

Similar items of each material class are to be presented separately.

• Offsetting

No offsetting of asset and liabilities, and income and expenses unless permitted by a Standard.

• Comparative information

To disclose comparative information of previous period for comparative purposes.

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements except for presentation of cash flow statements which is covered under FRS 7.

FRS 1 also specifies that entities disclose information that is presented in the financial statements such as the accounting policies, judgments and key sources of estimation uncertainty at the balance sheet date.

Source - ICPAS ePublication 8 November 2005 Issue 9/2005

ACCA's Certificate of Achievement for F1, F2 and F3

Under the new scheme,

There will be no more paper winners for F1 to F3. Instead a Certificate of Achievement will be awarded to students who have scored 85% and above in these papers. This is regardless of whether they took the paper-based or CBE exams.

MSER students will only be eligible for prizes from F4 to F9 and P1 to P7 when they transfer to the Professional Scheme.

P/S - So for those who have scored higher than 85%, please look out for your "Certificate of Achievement". Cheers.