Revising For The September 2020 Exam Session: Strategic Business Reporting (SBR)
Revising For The September 2020 Exam Session: Strategic Business Reporting (SBR)
Revising For The September 2020 Exam Session: Strategic Business Reporting (SBR)
Part 1
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Strategic Business Reporting (SBR)
Contents
Introduction ...................................................................................................... 3
Applying accounting principles to different contexts......................................... 3
Crowdfunding ................................................................................................... 4
Considerations ............................................................................................................................ 4
Example.......................................................................................................................................... 5
Suggested answer..................................................................................................................... 5
Guidance........................................................................................................................................ 5
The Impairment of Financial Instruments ......................................................... 7
Example.......................................................................................................................................... 8
Guidance........................................................................................................................................ 9
Conclusion ..................................................................................................... 10
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Strategic Business Reporting (SBR)
Introduction
This article addresses two issues: first, the application of accounting principles
in contemporary contexts (an exam technique issue) and secondly the
impairment of financial instruments (a technical knowledge issue). It is
expected that SBR candidates will follow the guidance in this document to
understand how they can assist their revision.
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Strategic Business Reporting (SBR)
Crowdfunding
Considerations
If the crowdfunding campaign involves the issuing of ‘rewards’, then IFRS 15,
Revenue from Contracts with Customers, should be used to determine when
to recognise revenue. For each performance obligation, the company will
need to determine whether the performance obligation is satisfied over time
(i.e. control of the good or service transfers to the customer over time). If one
or more of the criteria in IFRS 15 are met, then the company recognises
revenue over time. If none of the criteria is met, then control transfers to the
customer at a point in time and the company recognises revenue at that point
in time. However, if the company cannot reasonably measure the outcome but
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Strategic Business Reporting (SBR)
Example
Suggested answer
Guidance
Many SBR candidates may now have some extra time to reflect and rethink
values, concerns and routines, one of which may be their approach to study. It
may be a time to not focus on accounting techniques but on accounting
principles, to maybe read around the subject and gain an understanding of
what lies behind it. Remember the following:
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Strategic Business Reporting (SBR)
One technical area of the SBR syllabus that candidates often struggle with is
the impairment rules of IFRS 9, Financial Instruments. IFRS 9 uses an
Expected Credit Loss (ECL) model which requires a calculation of the
expected value decrease in a financial asset. Essentially, a provision is
required for expected credit losses on the financial asset over a period of
time. Expected losses should be discounted to the reporting date using the
effective interest rate of the financial asset that was determined at initial
recognition.
• Stage 1 deals with financial instruments that have not had a significant
increase in credit risk since they were first recognised or that have low
credit risk at the financial year end. For these assets, 12-month ECL
are recognised which means that the entity has to calculate the
expected losses in the next 12 months taking into account the risk of
default. Any interest revenue is calculated on the gross carrying
amount of the asset without the deduction of the credit loss.
• Stage 2 deals with financial instruments that have had a significant
increase in credit risk since they were first recognised unless the credit
risk is still low at the financial year end. These instruments are not
credit-impaired. The expected losses over the life of the financial
instrument are recognised (lifetime ECL) taking into account the risk of
default. Interest revenue is still calculated on the gross carrying amount
of the asset.
• Stage 3 deals with financial assets that are credit-impaired, which is
where events have occurred that have a detrimental impact on the
estimated future cash flows from the financial asset. For these assets,
lifetime ECL are also recognised. However, interest revenue is
calculated on the carrying amount less the ECL allowance.
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Strategic Business Reporting (SBR)
Example
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Strategic Business Reporting (SBR)
Guidance
If you are struggling with a technical issue in the SBR syllabus, try to pair it
back to basic principles that you can use in any context. For example, the
suggested solution above relies on an understanding of the accounting
principles that apply at each stage of credit impairment. Understanding and
applying these principles in an exam context will demonstrate a deep
understanding of the issue and an ability to apply it to the question scenario. It
is these skills that employers are looking for and examiners will award marks
for.
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Strategic Business Reporting (SBR)
Conclusion
This article addresses two issues that SBR candidates have struggled with in
recent exam diets; one relates to exam technique and the other a more
technical issue. Given that some ACCA exams have been delayed,
candidates should use the guidance provided here to aid their revision.
Finally, a plea for SBR candidates to answer all parts of all questions. Please
help the examining team to pass you!
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