P2 Corporate Reporting paper has been a very demanding and challenging paper for most students with many complaining about the impossible time allocated to answer such a wide range of accounting issues and standards. A normal examination paper would test about eight to twelve accounting standards across all the questions.
Thus, this article is intended to provide advice on how to fully maximise the three hours allocated for answering the required 3 (three) questions in P2.
Paper P2 comprises two sections. Section A is a compulsory question worth 50 marks while Section B will consist of three 25-mark questions of which students must attempt any two.
Section A
This question deals with the preparation of consolidated financial statements, including group cash flow statements; embedded with several accounting standards treatments. It is perhaps unknown to many that the consolidation adjustments and the accounting standards treatments may be treated separately rather than together.
The accounting standards treatments are written separately (normally only affects the Parent company) and would not directly affect the consolidation answer of students. The examiner has expressed previously that marks are allocated separately for consolidation adjustment and accounting standards adjustments.
Students would be awarded full mark for the accounting standards adjustments if the answer provided shows good understanding of the required treatments although they are not presented in the final consolidated financial statements. This means that student should write a brief narrative on the accounting standards adjustments required and this shall gain considerable marks from the marker. Unlike in Section B, the marker only looks for the accounting treatments and the accounting principles are not very relevant here in question 1. Unless of course, where the student couldn’t figured out the accounting treatments, then explaining the accounting principles do help.
Normally, there are two styles being asked for accounting standards adjustments:
(i) The parent company has wrongly treated the transaction. Thus, the student is required the present a corrected accounting treatment after taking into consideration the accounting for reversal of the wrong treatment.
(ii) The parent company has not treated the transaction. This style is normally used for more difficult accounting standards such as employee benefits, foreign exchange translations and share based payments. Student only needs to show treatment of the relevant standards.
There is however a frequently tested standard (never once omitted from any P2 examination sittings since December 2007) i.e. FRS 21 The Effect of Changes in Foreign Exchange Rates. For example, this involved the acquisition of an investment property located in a foreign country. The parent company adopts fair value model and the said investment property is fair valued at each year end. Thus, the property needs to be retranslated from the foreign currency value to the local currency value at the year end. The gain or loss of which partially relates to exchange differences and the residual difference relates to revaluation gain shall be treated to the profit or loss.
The second part of Question 1 contains an element of ethics which usually carries about 5 marks. A quick glance through the notes in Question 1, student may be able to identify the paragraph relating to ethics. The paragraph usually discloses unethical behaviour of the group company and it is expected that the answer given should addressed the unethical behaviour in the context of not fulfilling the role and responsibilities of directors or accountants.
The third part however seems less predictable and would include principles relating to consolidation. This ranges from analysis of group cash flows, determination of functional currency, calculation of gain or loss on disposal, etc.
There is however a frequently tested standard (never once omitted from any P2 examination sittings since December 2007) i.e. FRS 21 The Effect of Changes in Foreign Exchange Rates. For example, this involved the acquisition of an investment property located in a foreign country. The parent company adopts fair value model and the said investment property is fair valued at each year end. Thus, the property needs to be retranslated from the foreign currency value to the local currency value at the year end. The gain or loss of which partially relates to exchange differences and the residual difference relates to revaluation gain shall be treated to the profit or loss.
The second part of Question 1 contains an element of ethics which usually carries about 5 marks. A quick glance through the notes in Question 1, student may be able to identify the paragraph relating to ethics. The paragraph usually discloses unethical behaviour of the group company and it is expected that the answer given should addressed the unethical behaviour in the context of not fulfilling the role and responsibilities of directors or accountants.
The third part however seems less predictable and would include principles relating to consolidation. This ranges from analysis of group cash flows, determination of functional currency, calculation of gain or loss on disposal, etc.
Consolidated financial statements may test students any of the following themes:-
(i) Mixed or Vertical groups
(ii) Piecemeal acquisitions
(iii) Disposals
(iv) Foreign operations:–
a. Translation from foreign currency to functional currency
b. Translation from functional currency to presentation currency (Closing rate method)
(v) Group statement of cash flows
It should be noted that the examiner has in the previous sitting (Dec 2009) tested both piecemeal acquisition and disposals together.
Besides the above, consolidation issues such as fair value adjustments; unrealised profits, etc. are frequently examined.
(i) Mixed or Vertical groups
(ii) Piecemeal acquisitions
(iii) Disposals
(iv) Foreign operations:–
a. Translation from foreign currency to functional currency
b. Translation from functional currency to presentation currency (Closing rate method)
(v) Group statement of cash flows
It should be noted that the examiner has in the previous sitting (Dec 2009) tested both piecemeal acquisition and disposals together.
Besides the above, consolidation issues such as fair value adjustments; unrealised profits, etc. are frequently examined.
Section B
This section will normally comprise two questions based on a scenario or case study, and usually one essay-style question which now may involve some calculation. The questions in this section will deal with all aspects of the syllabus.
Remember the marker is looking for the underlying principle of the issue to be addressed rather than the calculated figures. Computation should be seen as a supporting element that complements the student’s answer rather than the actual answer for the questions.
The norms are that Question 2 may tests on either one or two accounting standards. This covers the element of computation as well as theory; which usually test students on their understanding of the concepts and issues involved on that particular standard. Students may have to identify the issues and deficiencies which have led to the proposed change to accounting standard.
There will be an increasing emphasis on the conceptual framework which underpins the standards, and the examiner's approach will be to examine several standards at each diet. The standards examined at each sitting ranged from eight to twelve thus, leaving very little room for student to spot topics.
The key standards includes revenue, impairment, provisioning, property plant and equipment, taxation, employee benefits, share based payments, leases, foreign exchange, intangibles, financial instruments, post reporting period and reporting financial performance (including discontinued operations).
Financial instruments will be dealt with at a relatively simple level of the syllabus. Hedged accounting now seems to be rarely tested, in fact was never tested when the paper changed to P2.
Question 3 is the most time consuming question in Section B as it tests several standards (at least 4) in one question; several mini case studies are written independently of each other and separated by paragraphs. Each mini case shall test on at least one particular standard. Student should be able to identify the standards being examined and discuss the accounting treatments advocated by each standard. The marks are allocated for both the underlying principle and the accounting treatment. Usually student merely stated the accounting treatments without mentioning the underlying principle i.e. why we treated it this way. Thereby, resulted in unnecessary marks being lost.
Question 4 formerly only required essay style answer but after the last two sittings also demands some computational element to support the answer. This question centred on current issues which resulted in issuance of Exposure Drafts and Discussion Papers. Exposure drafts will be examined but only in terms of the key areas of change, and there will not be a complete question on a single exposure draft. Discussion papers will be examined on a principles basis, and detailed knowledge of such will not be required.
This section will normally comprise two questions based on a scenario or case study, and usually one essay-style question which now may involve some calculation. The questions in this section will deal with all aspects of the syllabus.
Remember the marker is looking for the underlying principle of the issue to be addressed rather than the calculated figures. Computation should be seen as a supporting element that complements the student’s answer rather than the actual answer for the questions.
The norms are that Question 2 may tests on either one or two accounting standards. This covers the element of computation as well as theory; which usually test students on their understanding of the concepts and issues involved on that particular standard. Students may have to identify the issues and deficiencies which have led to the proposed change to accounting standard.
There will be an increasing emphasis on the conceptual framework which underpins the standards, and the examiner's approach will be to examine several standards at each diet. The standards examined at each sitting ranged from eight to twelve thus, leaving very little room for student to spot topics.
The key standards includes revenue, impairment, provisioning, property plant and equipment, taxation, employee benefits, share based payments, leases, foreign exchange, intangibles, financial instruments, post reporting period and reporting financial performance (including discontinued operations).
Financial instruments will be dealt with at a relatively simple level of the syllabus. Hedged accounting now seems to be rarely tested, in fact was never tested when the paper changed to P2.
Question 3 is the most time consuming question in Section B as it tests several standards (at least 4) in one question; several mini case studies are written independently of each other and separated by paragraphs. Each mini case shall test on at least one particular standard. Student should be able to identify the standards being examined and discuss the accounting treatments advocated by each standard. The marks are allocated for both the underlying principle and the accounting treatment. Usually student merely stated the accounting treatments without mentioning the underlying principle i.e. why we treated it this way. Thereby, resulted in unnecessary marks being lost.
Question 4 formerly only required essay style answer but after the last two sittings also demands some computational element to support the answer. This question centred on current issues which resulted in issuance of Exposure Drafts and Discussion Papers. Exposure drafts will be examined but only in terms of the key areas of change, and there will not be a complete question on a single exposure draft. Discussion papers will be examined on a principles basis, and detailed knowledge of such will not be required.
Time management
Proper time management is essential given the breadth of standards tested. Each ONE mark is equivalent to 1.8 minutes to be exact. The following table shows the time management schedule which should be practised by each student:-
Proper time management is essential given the breadth of standards tested. Each ONE mark is equivalent to 1.8 minutes to be exact. The following table shows the time management schedule which should be practised by each student:-
In order to be secured for a pass, there is an unwritten rule that the student must at least obtain a pass (at least or more than 25 marks) for the consolidated accounts question (Question 1). I do have students who passed by merely doing 2 questions i.e. Question 1 and one other question in Section B but this should best be avoided.
There is no other trick of passing P2, student should PRACTISE, PRACTISE, PRACTISE at least 10 sittings of past year questions before the final exam day itself.
( This article is also available at SAA-GE Singapore )
There is no other trick of passing P2, student should PRACTISE, PRACTISE, PRACTISE at least 10 sittings of past year questions before the final exam day itself.
( This article is also available at SAA-GE Singapore )
