Financial Reporting – examiner’s approach

This article should be read in conjunction with other related published material including the Syllabus and Study Guide, study support, examining team guidance, CBE past papers and specimen exam. 

The Financial Reporting (FR) exam aims to develop knowledge and skills in the understanding and application of accounting standards and the conceptual and regulatory frameworks of accounting to the preparation of financial statements of single and group entities. The analysis and interpretation of financial statements will also be tested.

On successful completion the FR exam, candidates should be able to:

  • discuss and apply a conceptual and regulatory framework for financial reporting
  • account for transactions in accordance with International accounting standards
  • analyse and interpret financial statements
  • prepare and present financial statements for single entities and business combinations in accordance with International Financial Reporting Standards (IFRS®).

The FR exam builds on the knowledge and skills acquired from both Financial Accounting (FA) and Corporate and Business Law (LW). The FR exam will also provide the platform for progression to Strategic Business Reporting (SBR) and (to a lesser extent) to Strategic Business Leader (SBL) and the auditing exam Advanced Audit and Assurance (AAA).

As indicated, a substantial element of FR exam is the requirement to understand and apply accounting standards. Not all extant accounting standards are examinable; the examinable documents for each exam are regularly updated and published on the ACCA website.

Some IFRS Standards are very detailed and complex and it would be inappropriate to expect candidates at this level to have a complete knowledge of such standards. Therefore, candidates will be expected to understand the main principles and objectives of accounting standards, and to be able to apply these when required.

Further important aspects of the syllabus are the conceptual issues and definition of the elements of financial statements that underpin IFRS Standards and generally accepted accounting principles. Much of the conceptual knowledge is to be found in the IASB’s Conceptual Framework for Financial Reporting (the Conceptual Framework). The role of the International Accounting Standards Board (the Board) is an important element of the regulatory framework.

The concept of business combinations and the preparation of consolidated financial statements are also important elements of the FR exam. Accounting for business combinations can be seen as a progression from preparing the financial statements of a single entity. Consolidation questions will be limited to a parent company and one subsidiary, with the possible inclusion of an associate that will require equity accounting. A question that tests the interpretation of the financial statements of a group of companies, may be based on a group which has more than one subsidiary.

It should be noted that joint ventures are not examinable in FR.

Candidates may observe that some accounting standards appear in all three financial accounting papers; FA, FR and SBR. This illustrates the relationship between the exams, and reflects the continuity and progression of the syllabus. Where a topic appears in both FA and FR, any examination of that topic in FR will be at more advanced level, requiring greater understanding and appropriately higher level skills.

The final element of the syllabus is the analysis and interpretation of financial statements. Although candidates will be expected to calculate various accounting ratios, FR places emphasis on the interpretation of what particular ratios are intended to measure and the impact that consolidation adjustments may have on any comparisons of group financial statements. The financial statements that require interpretation will include the Statement of Profit or Loss, the Statement of Financial Position and the Statement of Cash Flows.

To summarise, candidates need to: understand the concepts underlying the preparation of an entity’s financial reports; apply their knowledge of accounting standards to prepare financial statements of both single and group entities; and finally, to demonstrate their analytical skills in the assessment of the financial statements of a single entity or a group and the accounting ratios that are derived from them.

Format and structure of the computer-based exam (CBE)

The revised structure of the three-hour twenty minute CBE exam will comprise of three sections: A, B and C. All questions are compulsory. Some questions will adopt a scenario/case study approach.

Section A will contain 15 objective test questions (OT) of two marks each representing 30% of the examination. There are no partial marks for OT questions.

Section B, of the exam comprises three 10 mark objective-test case questions. Each case has five objective test questions of 2 marks, representing 30% of the examination.Objective-test (OT) questions are not always the same as traditional multiple-choice questions (MCQ), although they could take the form of an MCQ. Candidates should ensure that they are familiar with the different styles of OT that may be used. The specimen exam and guides to computer-based exams are available on the website and should be accessed to ensure that candidates are well-practised.

Section C of the exam comprises two 20 mark constructed response questions which represents 40% of the examination. These questions are expert marked – all workings and calculations can be viewed by the marker.

Constructed response questions require candidates to produce individual narrative and/or numerical answers which they input into blank word processing pages or blank spreadsheets. A number of standard word processing and spreadsheet functions are available via the menu and tool bar for candidates to use when responding to the question.

An extra 10 marks of objective test content (either five single OT questions or five OT questions based around a single scenario), for which candidates are given an extra 20 minutes. These questions are included to ensure fairness, reliability and security of exams. These questions do not directly contribute towards the candidate’s score. Candidates will not be able to differentiate between the questions that contribute to the result and those that do not.

One of the reasons for this format, particularly the use of the Section A and B objective test questions, is to ensure that candidates adequately cover the whole of the syllabus. This is intended to counter what seemed to be a growing practice of many candidates only studying the ‘core’ topics..

Such a strategy is very short term and should be avoided; it does not provide the breadth of knowledge required for progression to the Strategic Professional level nor does it provide the background knowledge required for workplace development and professional life as an accountant. To further encourage broader study, candidates should be aware that questions in section B and C of the exam will test different subject areas of the syllabus. 

Section A

The 15 two-mark questions in this section can potentially test any area of the syllabus. They may be narrative or computational and test both knowledge and application. The exact composition of the questions will depend on the other topics tested in the exam such that an overall balanced exam is achieved.

Section B

The three case questions in this section will be based on a scenario and could also be set on any area of the syllabus. All five questions in each case might be related to a single topic area or a few syllabus topics might be contained in each scenario. However the five questions are independent of each other so getting a question wrong will not affect the other responses within that case. These case questions allow syllabus topics to be examined in more depth.

Section C

The constructed response questions in this section could also be set on any area of the syllabus. One 20-mark question will require the preparation of the financial statements of a single entity or a group, whereas the other will require the interpretation of the financial statements of a single entity or a group.

Section C questions on the preparation of group financial statements will be largely computational but there may also be a short written element. Aspects of group accounting can also be examined in Sections A and B.

The consolidation question might require the preparation of the consolidated statements of profit or loss and other comprehensive income and/or the consolidated statement of financial position. Usually, the group will include only a single subsidiary, but may include an associate. It may be that ‘extracts’ of financial statements are required rather than the preparation of full financial statements.

Important consolidation topics for candidates to be comfortable with are: the concept of pre- and post-acquisition profits, calculation of goodwill and non-controlling interests, fair value adjustments and elimination of intra-group transactions.

Section C questions on the preparation of single entity financial statements are a good example of where several syllabus areas can be tested in a single question, for example such questions are likely to cover several IFRS topics.

Information may be in the form of a trial balance (or extracts) accompanied by several notes that will need to be taken into consideration when preparing the financial statements. Topics that often appear in these questions are: accounting for leases, the revaluation or impairment of non-current assets, dealing with financial instruments, taxation including deferred tax and calculating earnings per share.

Candidates may also be asked to comment on the appropriateness or acceptability of management’s proposed accounting treatment of a transaction or event.

Questions on the analysis and interpretation of financial statements of a single entity or a group may require the calculation of certain ratios prior to their analysis. Candidates should be prepared to interpret the comparative performance of a single entity or group over periods of time, one entity against a competitor entity or against industry sector averages. Candidates will need an understanding of how certain transactions or events, including consolidation adjustments, may have affected a valid comparison. For example, there is a question in the Specimen exam where a subsidiary has been purchased during the current year.

Please remember the above is not an exhaustive list of the topics that may appear in Section C, virtually the whole of the syllabus may be examined here.

To ensure you can concentrate on answering the question requirement, you should make sure you are comfortable with the functionality of the response options. There is a very useful resource on the ACCA website Your Guide to ACCA CBE’s which you should read and you should use the specimen exam and extra constructed response questions to practice answering these types of questions.

Specimen paper

Many of the above points and observations are illustrated by the Specimen exam and extra constructed response questions. It is largely based on adaptations of past questions which illustrate the implementation of changes to the structure of the paper. This will allow you to see and practice the full range of OT questions in section A and B, as well as the constructed response questions in section C.


We hope the above will be of assistance to candidates and tutors. This article should be read in conjunction with other related published material including the Syllabus and Study Guide, Study Support, Examining Team Guidance CBE past papers and Specimen Paper

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