F7 FR | Exam Kit - KAP LAN

The 'FR' paper is a step up from FA's double-entry bookkeeping and serves as a bridge to Strategic Business Reporting.

F3 is a very basic level, and F7 builds directly on what students learned at that level. Then there's P2, which is the pinnacle. By the way, Management Accounting is the other major strand. That focuses on what you do within the company, whereas financial reporting is concerned with how you represent the company to outsiders.

The way you portray what's going on in your business to interested third parties is called financial reporting. For example, shareholders, banks, or investors.

So, in order to pass the ACCA F7 (FR) Financial Reporting exam, students must learn how to prepare a financial statement for those third parties?

Yes, but that makes it appear to be very simple. In reality, there's a lot more to it than that. That, in my opinion, is what makes it interesting.
To tell you the truth, I used to despise financial reporting. When I was studying for my exams, I never considered pursuing a career here. I didn't understand financial reporting and was relieved to be free of it.

It turned out that I was probably under-taught! I ended up revisiting it in an investment context and discovering that it is vastly different in practice.
2021 | F7 (FR) - Financial Reporting | KAP LAN - STUDY TEXT and EXAM KIT
The fascinating aspect of accounting is that you are attempting to depict events that occurred in real life using numbers and financial statements. You're attempting to tell a story or paint a picture, as the case may be.
You're attempting to depict events that occurred in real life using numbers and financial statements. You're attempting to tell a story and create an image.

Can you share an example?

Yes, of course. Assume you own a freehold building as part of your business. What do you put in your financial statements to show that? What method do you use to determine how much that asset is worth to you? You could base your decision on what you paid for it or the current market rate, but different surveyors will provide you with different results.

Consider the following scenario: you've just sent a client an invoice. That is receivable, and you record it as an asset because it will become an asset once they pay. You believe it will benefit you in the future. But what if they don't pay? When do you decide to deduct that amount from your income statement? You're assigning value to intangibles such as promises and assumptions.

Because you face these types of dilemmas on a regular basis, ACCA F7 (FR) Financial Reporting introduces students to a world where financial reporting is no longer black and white. There are no right or wrong answers; only different points of view. There are many shades of grey in accounting.

F7 encourages students to recognize that there are numerous options available to them, each requiring the use of different tools or methods depending on the situation. Because accountants still don't know how to accurately show certain things, these rules change on a regular basis.

So ACCA F7 (FR) Financial Reporting includes all of these methods?

That's exactly it. The ACCA F7 (FR) Financial Reporting syllabus covers the full range of decision-making approaches.

Making decisions about the value of certain assets within the company?

Accountants "measure" rather than "value." However, it is demonstrating to students the range of methods that can be used to measure various assets in order to prepare financial reports.
Accountants "measure," not "value."
On the balance sheet, we concentrate on assets and liabilities, and on the income statement, we concentrate on revenue and profit. ACCA F7 (FR) Financial Reporting walks students through all of the possible scenarios in both of those locations. Intangible assets include things like branding, property, plant, and equipment, stock/inventory, investments, and biological assets, to name a few.

Everything can – and must – be measured in order to be translated into a financial report. This is where ambiguity enters the picture. What is the value of a logo? What is the value of a brand?

So there are no rules, only opinions?

There are rules, but you must sometimes make an educated decision about which rules apply. There are often strict guidelines dictating how to measure a specific asset, and students must be aware of all of them, but they must also be aware of when they must make a judgment call.
You must make an educated decision about which rules apply.
Students in ACCA F7 (FR) Financial Reporting are increasingly confronted with situations in which they must exercise judgment. Let's say I've sent you an invoice but you haven't yet accepted the delivery. Is this your or my stock? Have I managed to persuade you to buy it? Is it possible to recognize the sale profit and remove the inventory from my balance sheet?

The rules can be difficult to apply in practice at times. Buying yogurt in a supermarket is one thing: I take your product to the cash register, pay for it, and it becomes my product. It's rarely that simple in other situations.

It's one thing to buy yogurt in a supermarket. It's rarely that simple in other situations.

As an accountant, you see that ambiguity all the time in the real world. To know how to deal with them, you must first comprehend the range of rules that may apply.

In practice, how does that ambiguity work?

Do you recall the Greek crisis from a few years ago? That's an excellent example. Greece was almost bankrupt before being bailed out, but Greek bonds were only trading at around 50% at the time. Because the market believed Greece would default on its debt, the bond's value plummeted.

How do you value that asset if you're a bank holding Greek bonds? In terms of market value, you now own only half of what you did before. In your financial reports, how do you depict this situation?

That's where financial reporting's gray areas come into play because the answer is contingent on how you value the loss. Some banks, for example, valued their bonds at 80% because they believed the market was wrong, while others trusted the market and went to 50%.
Although the same asset is measured differently depending on the perspective, you can't say one was "more right" than the other.

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