ACCA SBR cheat sheet

Conceptual Framework 2018: relevance and faithful representation are fundamental qualitative characteristics; comparability, verifiability, timeliness and understandability are enhancing.

Relevance requires predictive value, confirmatory value or both; materiality is an entity-specific aspect of relevance.

Faithful representation requires completeness, neutrality and freedom from error; prudence supports neutrality by not overstating assets or understating liabilities.

Definitions: asset = present economic resource controlled by the entity as a result of past events; liability = present obligation to transfer an economic resource as a result of past events; both require potential to produce economic benefits.

Recognition requires relevance and faithful representation; measurement bases are historical cost and current value (fair value, value in use/fulfilment value, current cost).

Agency theory: separation of ownership and control creates information asymmetry and monitoring demand, explaining why general purpose financial statements are prepared.

Stakeholder theory and legitimacy theory explain voluntary disclosure behaviour; institutional theory explains isomorphic adoption of reporting practices.

Fair value IFRS 13: exit price in an orderly transaction between market participants at the measurement date; highest and best use applies to non-financial assets.

Positive accounting theory predicts opportunistic and efficiency-driven accounting choice; earnings management is detected via accruals, benchmark beating and classification shifting.

IFRS 3: acquisition method - identify acquirer, acquisition date, recognise and measure identifiable assets/liabilities at fair value; goodwill = consideration transferred + NCI + previously held interest − net identifiable assets.

NCI measured at fair value (full goodwill) or proportionate share of net assets (partial goodwill); choice is made per transaction.

IFRS 10 control: power over the investee, exposure to variable returns, and ability to use power to affect returns; intragroup balances, income and dividends are eliminated in full.

IFRS 9 expected credit losses: 12-month ECL at initial recognition; lifetime ECL when credit risk increases significantly; simplified approach (lifetime ECL) for trade receivables.

IFRS 15 five steps: identify contract; identify performance obligations; determine transaction price; allocate price to obligations; recognise revenue on transfer of control over time or at a point in time.

IFRS 16 lessee: recognise right-of-use asset and lease liability at present value of lease payments; lessor classifies as finance lease if risks and rewards substantially transfer.

IAS 19 defined benefit: net defined benefit liability = present value of obligation − fair value of plan assets, subject to asset ceiling; remeasurements go to OCI, service cost and net interest to profit or loss.

IAS 12 deferred tax: recognise on temporary differences using the liability method at expected reversal rates; deferred tax on goodwill and initial recognition exemptions is not recognised.

IFRS 5: non-current assets held for sale measured at lower of carrying amount and fair value less costs to sell, no depreciation, presented separately; discontinued operations reported separately in profit or loss.

ROCE = operating profit / (total assets − current liabilities); decompose via asset turnover × operating margin to identify drivers of change.

DuPont: ROE = net profit margin × asset turnover × financial leverage; a rise in ROE driven only by leverage signals increased financial risk.

Gearing = debt / (debt + equity) or debt / equity; interest cover = operating profit / finance costs; a low interest cover constrains dividend capacity.

Cash conversion: operating cash flow / EBITDA; persistent divergence between profit and cash indicates accruals quality or revenue recognition issues.

Limitations of ratio analysis: differing accounting policies, one-off items, window dressing, absence of a benchmark and inflation effects.

IFRS S1 requires disclosure of sustainability-related risks and opportunities that could reasonably be expected to affect prospects, cash flows, access to finance or cost of capital.

IFRS S2 requires Scope 1, 2 and 3 greenhouse gas emissions disclosed under the GHG Protocol, with Scope 3 including value chain emissions.

TCFD four pillars: governance, strategy, risk management, and metrics and targets; IFRS S1/S2 incorporate these pillars into the reporting architecture.

Integrated reporting six capitals: financial, manufactured, intellectual, human, social and relationship, and natural capital; connectivity of financial and sustainability information is central.