Financial Accounting and Reporting
Scope
Financial Accounting and Reporting tests preparation and interpretation of IFRS-based financial statements and Nigerian reporting compliance. The Financial Reporting Council (FRC) of Nigeria endorses IFRS for public-interest entities.
Core rules
- Accrual and going concern. Revenue and expenses are recognised when earned or incurred, not when cash moves. Statements assume the entity continues unless there is evidence otherwise.
- Revenue (IFRS 15). Apply the five-step model: identify the contract, identify performance obligations, determine transaction price, allocate it to obligations, and recognise revenue when control transfers.
- Leases (IFRS 16). Lessees recognise a right-of-use asset and lease liability, replacing most operating-lease off-balance-sheet treatment.
- Consolidation. Control, not merely shareholding, determines consolidation. Intra-group balances and unrealised profits are eliminated.
- Financial instruments (IFRS 9). Classify and measure financial assets by business model and cash-flow characteristics; apply expected credit losses.
Worked example
A vendor charges N1,300,000 for equipment, installation and two-year maintenance. Standalone prices are N900,000, N100,000 and N200,000 (total N1,200,000). Allocate the N1,300,000 transaction price pro rata: equipment N975,000; installation N108,333; maintenance N216,667. Recognise equipment and installation when control passes; recognise maintenance over two years. The reasoning is that the transaction price follows relative standalone selling prices, not the invoice labels.
Traps
Do not confuse profit with cash; do not leave leases off-balance-sheet under IFRS 16; do not recognise revenue on receipt of cash alone; and do not consolidate on shareholding without assessing control.