Financial Accounting and Reporting
How to beef up your FAR IFRS treatment answers
December 13, 2021
The IFRS treatment question in the FAR is often the single most important question in the exam paper, given that it will be worth between 30 and 35 marks every time. This style of question is also similar to what you will be asked to do in the Corporate Reporting paper at the Advanced Level.
It therefore pays to prepare well for this question and develop a good answering technique since this will help you at the Advanced Level as well: a surprisingly high number of marks in the Corporate Reporting examination are actually awarded for brought forward FAR knowledge, rather than the new Advanced Level syllabus content, so this will often catch out students whose FAR knowledge is a little “rusty” and/ or who only just scraped through the FAR paper.
Our first tip to prepare well for this type of question is simply to practice as much as possible because it is clear that the FAR examiners have a bank of approximately 20 to 30 topic areas which they will draw on in a similar way time and time again. The setup of the question wording, and the text of the model answers, is extremely similar every time a particular topic is tested. So if you can understand the basic “skeleton outline” of what you need to do, this will really help!
It will also be helpful to think of what we call the “principle of triple effect” which basically means thinking through how each financial reporting issue will have an implication for the statement of profit or loss, statement of financial position and statement of cash flows.
Ensuring that you force yourself to always think about the impact on these 3 parts of the financial statements should help you to beef up your FAR (and later Corporate Reporting) answering style.
Remember that, in many cases, there may be no cash impact on the statement of cash flows as the matter is simply an accounting entry or adjustment. If so, it may be worth explicitly stating that there is no impact and ensuring that you discuss the impacts on the statement of profit or loss and statement of financial position as much as possible.
Sometimes you have to explicitly state that there is no impact because otherwise the examiner has no way of distinguishing between, on the one hand, candidates who understand this point and therefore left something out and, on the other hand, candidates who simply didn't consider whether there is a cash impact at all.
There is in fact a second way of thinking about the “principle of triple effect” in the sense that a good IFRS treatment response will always look at the treatment at initial recognition, the treatment of the matter during the year and then finally any year-end adjustments (including final balances).
This is a little bit like the way you may have been taught to write an effective story at school, with a good beginning, middle and end.
In our experience, FAR candidates often do not write enough content or perform enough calculations relating to the final year-end elements of this different type of “triple effect”. Candidates therefore neglect the very exciting “end” of the story.
In particular, many candidates do not pick up the easy marks for combining the impact of initial recognition and the treatment during the year to derive a final balance figure. For example, if the issue involves something which reduces an asset account over the year (e.g. depreciation), you should try to state the final figure or balance of that asset account as part of your “end” element of the discussion — this should simply be a matter of bringing together the narrative and figures that you have discussed earlier in your response but, typically, candidates forget to do this (perhaps because they are short of time by this point) and so only talk about the initial position and the depreciation in the year, rather than also combining these 2 points to arrive at the year-end balance.
To find out more about our various FAR resources and how they can help with your ACA exam training, please click here.