Program (SQ): PROFESSIONAL PROGRAM

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  • 15 Marks

Title: FR – L2 – Q11 – Accounting Policies

Define accounting policies as per IAS 8 requirements.

(a) Define accounting policies.

(b) State the main factors that IAS 8 requires management to consider in selecting and applying accounting policies in the absence of any IFRS Accounting Standard.

(c) Discuss, briefly, alternative accounting policies on the following items in financial statements:

(i) Property, plant, and equipment

(ii) Inventories

(iii) Depreciation

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  • 20 Marks

SCS – L3 – Q25 – Competitive advantage

Discuss Porter's Diamond factors for Central African competitiveness and analyze four internationalization strategies with risks.

(a) Nexlify IT Solutions (NIS) started operations 10 years ago in Zamora providing a wide range of information technology solutions to diverse clientele. Mr. Adom, the chief executive officer (CEO) of the company, recently has been contemplating venturing into other Central African markets to take advantage of untapped opportunities. This is also to strengthen competitive position of NIS since Zamorean market growth is beginning to slow down and competition is getting keener.

At the 2016 second quarter Board meeting, the CEO tabled his proposal for consideration and board’s input before the document was finalized. During the Board discussions Prof Mensah, who lectures Corporate Strategy, suggested to the CEO to use Porter’s Diamond of national advantage to assess competitive advantage of the other Central African countries the company intends to enter. Prof Mensah also mentioned to the CEO that companies that compete in the global marketplace typically face two types of competitive pressures: pressures for cost reductions or global integration and pressures to be locally responsive.

The cost reduction-local responsiveness dilemma shapes and results in four basic international strategies – international, global, multidomestic, and transnational – which the CEO should consider in making the choice.

Required:

Discuss how the FOUR factors in the Porter’s Diamond of national advantage determine competitiveness of the other Central African countries on the global stage.

(b) Explain the following internationalization strategies and identify TWO risks associated with each of the strategies:

(i) International strategy

(ii) Global strategy

(iii) Multidomestic/Multinational strategy; and

(iv) Transnational strategy

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  • 15 Marks

FR – L2 – Q10 – Accounting policies and changes in estimates

Show how a change in accounting policy for borrowing costs is reflected in the statement of changes in equity for 20X4 per IAS 8.

AccraTech Company has previously written off any expenditure on borrowing costs in the period in which it was incurred.
The company has appointed new auditors this year. They have expressed the view that the previous recognition of borrowing costs in the statement of profit or loss was in error. The company has decided to correct the error retrospectively in accordance with IAS 8.
The financial statements for 20X3 and the 20X4 draft financial statements, both reflecting the old policy, show the following:

Statement of changes in equity (extract)

20X3 20X4
Retained earnings Retained earnings
GH₵000 GH₵000
22,500 23,950
3,200 4,712
(1,750) (2,500)
23,950 26,162

Opening balance
Profit after tax for the period
Dividends paid
Closing balance

Borrowing costs written off were GH₵500,000 in 20X3 and GH₵600,000 in 20X4.
The directors have calculated that borrowing costs, net of depreciation which should have been included in property, plant and equipment had the correct policy been applied, are as follows:

GH₵000
At 30 December 20X2
At 31 December 20X3
At 31 December 20X4

Had the correct policy been in force depreciation of GH₵450,000 would have been charged in 20X3 and GH₵870,000 in 20X4.

Required
Show how the change in accounting policy must be reflected in the statement of changes in equity for the year ended 31 December 20X4. Work to the nearest GH₵000.

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  • 20 Marks

SCS – L3 – Q25 – Competitive advantage

Discuss Porter's Diamond factors for Central African competitiveness and explain four internationalization strategies with risks.

(a) Tech Trend IT Limited (TIL) started operations 10 years ago in Zamora providing a wide range of information technology solutions to diverse clientele. Mr. Mensah, the chief executive officer (CEO) of the company, recently has been contemplating venturing into other Central African markets to take advantage of untapped opportunities. This is also to strengthen competitive position of TIL since Zamorean market growth is beginning to slow down and competition is getting keener.

At the 2016 second quarter Board meeting, the CEO tabled his proposal for consideration and board’s input before the document was finalized. During the Board discussions Prof Nkrumah, who lectures Corporate Strategy, suggested to the CEO to use Porter’s Diamond of national advantage to assess competitive advantage of the other Central African countries the company intends to enter. Prof Nkrumah also mentioned to the CEO that companies that compete in the global marketplace typically face two types of competitive pressures: pressures for cost reductions or global integration and pressures to be locally responsive.

The cost reduction-local responsiveness dilemma shapes and results in four basic international strategies – international, global, multidomestic, and transnational – which the CEO should consider in making the choice.

Required:

Discuss how the FOUR factors in the Porter’s Diamond of national advantage determine competitiveness of the other Central African countries on the global stage.

(b) Explain the following internationalization strategies and identify TWO risks associated with each of the strategies:

(i) International strategy

(ii) Global strategy

(iii) Multidomestic/Multinational strategy; and

(iv) Transnational strategy

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  • 20 Marks

FR – L2 – Q9 – Professional and Ethical Issues in Financial Reporting

Identify ethical issues in two cases involving financial reporting decisions by ICAG accountants

TWO CASES

Case 1
Kofi Mensah has been on a two-year study sabbatical in Canada and this is his first job on returning to work. Kofi Mensah qualified as an ICAG chartered accountant just before his sabbatical. He worked in a medium-sized practice with wide experience of clients in the mining, manufacturing, and agricultural sectors.
Volta Assurance Limited is a subsidiary of a listed group involved in financial services. The financial controller of Volta Assurance Limited has been on long-term sick leave. Kofi Mensah has been offered an appointment as temporary financial controller three months before the 31 December 20X9 year-end.
Kofi Mensah would be responsible for preparing the financial statements for the year ended 31 December 20X9. Key areas of the financial statements include lessor accounting, financial instruments, and insurance contracts.
During his interview for the post, the group finance director told Kofi Mensah that the group is looking for a strong financial position and performance from the subsidiary and that if Kofi Mensah helps deliver it, he is sure to obtain a permanent post in the group.

Case 2
Kwame Osei is an ICAG Chartered Accountant and works as a financial accountant working for Kumasi Builders plc.
Kumasi Builders plc is about to finalise its financial statements for the year ended 31 December 20X9 and will release its results in two days’ time.
One of Kwame Osei’s tasks during the frantic year-end work was to perform an impairment review on certain assets owned by the company. There were indications of impairment, but Kwame Osei’s calculation of recoverable amount showed that no assets were impaired.
Kwame Osei has just read an article on spreadsheet error. This led him to review the spreadsheets that he built to perform the recoverable amount calculations, and he has found an error in the logic. This error, if corrected, would have led to the company recognising a material impairment loss.
The loss, if recognised, would lead to the profit figure falling below the level at which Kwame Osei’s bonus is triggered. He is also concerned that his mistake will compromise his future promotion prospects.

Required
Identify and explain the ethical issues arising in the above cases.

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  • 20 Marks

SCS – L3 – Q24 – Ethics and social responsibility

Discuss limits of CSR, safeguards for litigation threats to accountants, and strategic importance of HRM in employee development.

(a) Corporate Social Responsibility represents a company’s voluntary commitment to address the ethical, social and environmental factors associated with its operations. Despite its potential for furthering social needs, there are cogent arguments against Corporate Social Responsibility and may come under severe pressure in terms of its financing.

Required:

Discuss FOUR limits of Corporate Social Responsibility.

(b) Professional accountants face many threats in the performance of their duties that may negatively affect accountants’ objectivity and independence. One of such threats is intimidation threat which may arise from close business relationships, family and personal relationships, and assurance staff members moving to employment with client as well as actual and threatened litigation.

Required:

Explain FOUR safeguards you will consider to  deal with actual and threatened litigation as a professional accountant.

(c) Human Resource Management play an essential role in employee development activities. Employee development activities refer to initiatives taken by organization and employees to enhance their skills with time and keep themselves acquainted with the latest developments.

Required:

Explain TWO strategic importance of Human Resource Management and employee development.

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  • 20 Marks

FR – L2 – Q8 – Financial Reporting Standards

Explain the correctness of accounting treatments for preference shares, customer liquidation, and goodwill impairment in Trust Plc's financial statements.

The following information has been extracted from the draft financial statements of Trust Plc for the year ended 31 December 20X8.

Net assets Profit for the year
GH¢000 GH¢000
5,000 500

As the senior in charge of the audit, you identify the following:
(i) The company has preference shares in issue and these are included in equity at an amount of GH¢500,000. The annual dividend of 10% has been recognised in equity. The shares are to be redeemed in three years’ time.
(ii) One of Trust Plc’s customers went into liquidation shortly after the year-end owing Trust Plc GH¢25,000. The finance director has argued that the liquidation did not exist at the year-end and has retained the balance in the financial statements.
(iii) The company had recognised impairment of goodwill in the amount of GH¢400,000 in the financial statements for the year ended 31 December 20X8. The finance director has reversed the write-off in this year’s accounts due to an upturn in fortunes of the cash-generating unit to which the goodwill related. This has resulted in a credit of the full amount to the statement of profit or loss.

Required:
(a) Explain whether the above accounting treatments are correct and, if not, explain the correct

(b) Adjust the net assets and profit figures after making any necessary corrections in respect of the above accounting treatments.

(c) Identify and explain any ethical issues arising in the above. (Assume that Kofi is a full member of ICAG and that you are a student member).

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  • 10 Marks

FR – L2 – Q7 – Sustainability

Identify and explain three balances in the statement of financial position affected by sustainability issues.

Sustainability issues are becoming increasingly important in corporate reporting. They may also affect amounts reported in the financial statements.

Required:

(a) Identify and explain THREE examples of balances in the statement of financial position that may be affected by sustainability issues.

(b) Explain the work of the International Sustainability Standards Board to address investors’ information needs with regards to sustainability issues.

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  • 20 Marks

FR – L2 – Q6 – Conceptual Framework

Explain understandability, comparability, and the role of consistency in accounting policy changes in financial reporting.

The IASB’s Conceptual Framework for Financial Reporting states that the qualitative characteristics of financial statements are the attributes that make financial information useful.

Two of the enhancing qualitative characteristics of useful financial information contained in the IASB’s Conceptual Framework for Financial Reporting are understandability and comparability.

Required:

(a). Explain the meaning and purpose of the above characteristics in the context of financial reporting and discuss the role of consistency within the characteristic of comparability in relation to changes in accounting policy.

(b). Recognition in financial reporting is the process of incorporating into the financial statements an item that meets the definition of an element of financial statements and satisfies specified criteria.

Required:

State the criteria for recognition of an element of financial statements in financial reporting.

(c). The conceptual framework includes the measurement bases of the elements of the financial statements together with recognition criteria for them.

Required:

Explain the FOUR bases of measurement used in the financial statements.

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  • 9 Marks

FR – L2 – Q5 – Conceptual Framework for Financial Reporting

Explain relevance, faithful representation, and comparability in financial information per IASB's Conceptual Framework.

CHAPTER TWO
Chapter 2 of the IASB’s Conceptual Framework states that in order to be useful for decision making purposes information must have certain characteristics. It goes on to describe both fundamental and enhancing qualitative characteristics of financial information.
Fundamental qualitative characteristics are relevance and faithful representation. Enhancing qualitative characteristics include comparability.

Required
Explain what is meant by relevance, faithful representation and comparability and how they make financial information useful.

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