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http://www.accacareers.com/mailto:[email protected]://www.lsm.ac.uk/http://www.newport.ac.uk/

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how to passAccss ACCAs How o passwbs or a rag o suppor ohp wh your suds

teCHniCAl

technical archive on the acca websitewww2.accagoba.com/suds/sud_accoua/archv/

foundations in accountancyFor mor ormao vs www2.accagoba.com/fa

26 icc introduces

new internationalcommercial termsRva o ACCA QuafcaoPapr F4 (GlO)

studying paper p2 (uk)?A aayss o h UK papr

online

changes to the

cat and knowledge

module exams

with the launch

of accas diploma

in accountingand businesswww2.accagoba.com/suds/sud_accoua/archv/2011/120/3449163
http://www2.accaglobal.com/students/pass/http://www2.accaglobal.com/students/pass/http://www2.accaglobal.com/students/pass/http://www2.accaglobal.com/students/pass/http://www2.accaglobal.com/students/student_accountant/archive/http://www2.accaglobal.com/fiahttp://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/fiahttp://www2.accaglobal.com/students/student_accountant/archive/http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/pass/

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Changes to the Cat

and Knowledge

module exams

with the launCh

of aCCas diploma

in aCCountingand Business

Ra r a www2.accalal.c//_acca/arc/2011/120/3449163

foundations

in aCCountanCy

Lar ra ACCA r-llalfca Fa Accac awww2.accalal.c/fa

studying the uK stream of

paper p2

ReLevAnt to ACCA quALiFiCAtionpApeR p2 And peRFoRmAnCeobjeCtives 10 And 11This article, which Paper P2 (UK)candidates should be read inconjunction with ACCAs officialguidance, focuses on the papersUK stream, which is based on the

international syllabus but includesextra detail relevant to a UKpractising auditor.

ACCess ResouRCes ReLevAntto ACCA quALiFiCAtion pApeR p2www2.accaglobal.com/students/acca/exams/p2/

iCC introduCes new

international CommerCial

terms

ReLevAnt to pApeR F4David Kelly, examiner for Paper F4,discusses International CommercialTerms or Incoterms which are oftenfound in international trade contractsand provide a common set of rulesthat aim to avoid confusion over their

interpretation.Updates to Incoterms, announced

by the International Chamber ofCommerce in September 2010, cameinto effect in January 2011.

ACCess ResouRCes ReLevAntto ACCA quALiFiCAtion pApeR F4www2.accaglobal.com/students/acca/exams/f4/

aCCa online study

resourCes

Examiner reports, examinerinterviews and a wide variety oftechnical articles are availableon the ACCA website atwww.accaglobal.com/students/. Access the StudentAccountanttechnical articlearchive at www2.accaglobal.com/students/student_accountant/archive/

Coming up in future

issues of student

aCCountantFuture issues of StudentAccountantwill feature articles

on the Finance Act 2011 relevantto Papers F6 (UK), P6 (UK) and FTX

(UK), and using spreadsheets relevantto Paper MA2.

24 August 2011 ReLevAnt to ACCA And FoundAtions inACCountAnCy students

teChniCal artiCles

26 teChniCAL
http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/fiahttp://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354http://www2.accaglobal.com/students/acca/exams/p2/http://www2.accaglobal.com/students/acca/exams/p2/http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/acca/exams/f4/http://www2.accaglobal.com/students/acca/exams/f4/http://www.accaglobal.com/studentshttp://www.accaglobal.com/studentshttp://www2.accaglobal.com/students/student_accountant/archive/http://www2.accaglobal.com/students/student_accountant/archive/http://www2.accaglobal.com/students/student_accountant/archive/http://www2.accaglobal.com/fiahttp://www2.accaglobal.com/students/student_accountant/archive/2011/120/3449163http://www2.accaglobal.com/students/student_accountant/archive/http://www.accaglobal.com/studentshttp://www2.accaglobal.com/students/acca/exams/f4/http://www2.accaglobal.com/students/acca/exams/p2/http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464350http://www2.accaglobal.com/students/student_accountant/archive/2011/122/3464354

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RELEVANT TO ACCA QUALIFICATION PAPER P2

2011 ACCA

Studying the UK stream of Paper P2

ACCA has various streams available for students studying Paper P2, CorporateReporting. The international stream is the dominant one, and is based onInternational Financial Reporting Standards (IFRS). The examiner writes thisexam first and then tweaks the international exam to create the others.

The UK stream is now also based on IFRS. So, usually the examiner will makea few adjustments to the international exam before rebranding the exam as theUK streamed one. In the recent examiner conference in February 2011,Graham Holt, the Paper P2 examiner, explained that up to 20 marks might be

different in the Paper P2 (UK) compared to the Paper P2 (INT). He alsoexplained that the marks could be spread right across the paper with some UKmarks in the compulsory case study question.

The UK syllabus is based on the international syllabus but includes extradetails currently deemed of use to UK candidates. This means that the UKsyllabus is bigger than the international syllabus. The difference is not huge,but it is certainly not easy either.

The following article is designed to give you a feel for what you are getting intoshould you decide that the Paper P2 (UK) is for you. Please note that thearticle represents my interpretation of the Paper P2 (UK) syllabus and shouldnot be taken as an official guide to Paper P2 (UK). The official guide to PaperP2 (UK) is the study guide freely available on the ACCA website and this articleshould be read in conjunction with it.

Furthermore, an article has been written by ACCA in conjunction with GrahamHolt (the Paper P2 examiner) and Steve Scott (the Paper F7 examiner) thatoutlines the differences between the International and UK streams. It isscheduled for publication shortly. However, I am hopeful that the following willgive you a good grounding from which you can expand your studies.

REASONS FOR TAKING THE UK STREAMUnless you have a very good reason for taking the UK stream, my advice wouldbe to take the international stream. Soon there will be one form of accountingworldwide, based on IFRS, and any learning of local standards will quicklybecome redundant.

However, ACCA advises that if you wish to be a signatory audit partner in anACCA practice, you must have studied Paper P2 (UK). The following areextracts from the ACCA website in April 2011:

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STUDYING THE UK STREAM OF PAPER P2

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2011 ACCA

Should you wish to practise as a registered auditor within the UK (obtain theaudit qualification/audit practising certificate), you must attempt the Paper P2

(UK) and Paper P7 (UK) papers from June 2011 onwards. This is not aretrospective ruling, so any International papers you have already passed willbe unaffected by this ruling.

All UK professional accountancy bodies are governed by the requirements ofthe Statutory Audit Directive (SAD). In order to comply with the requirementsof SAD and to practise as an auditor certain elements of UK legislation andregulation should be examined. The revised Papers P2 (UK) and P7 (UK) fullymeet regulatory and business environment requirements for those wishing toobtain the UK audit qualification and, hence, practise as a registered auditor in

the UK.

Of course, you should also bear in mind that even if you do wish to become anaudit partner and sign audit reports, by the time you actually get there it ispossible there will be no UK financial reporting standards and the criteria for aregistered auditor may have changed. If you feel Paper P2 may be useful toyou, then make sure you carefully read the ACCA website for advice on thisarea, as it is possible that changes may be made regarding the applicability orcontent of Paper P2 (UK).

STREAM DIFFERENCESAs discussed above, both the international stream and the UK stream arebased on IFRS. The UK syllabus simply adds extra requirements on to theinternational syllabus. So the UK syllabus is the international syllabus withextras bolted on. The extras comprise essentially of two forms:

UK legislation for financial reporting UK financial reporting divergence.

The ACCA Paper P2 Study Guide gives detailed advice on the syllabus. All theextras are clearly labelled and fairly obvious within the Paper P2 Study Guideand the examinable documents. All of this is available online on the ACCA

website. But I hope to be able to give you a feel for the differences. So theextras are also covered here in summary.

UK legislation for financial reportingThis is reference B3a in the Paper P2 (UK) Study Guide.

Entity financial statements

All UK companies must produce financial statements. The most significantelement of the legislation on financial reporting in the UK applies to smallcompanies. Small companies are defined by size criteria that are highly

unlikely to be examined but, for completeness, an extract of the UK CompaniesHouse website is given below.

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A small company must meet at least two of the following conditions:

annual turnover must be not more than 6.5m the balance sheet total must be not more than 3.26m the average number of employees must be not more than 50.

The main advantage of qualifying as small company in the UK is that they areexempt from filing a cash flow statement.

Group financial statementsA small group is exempt from producing group financial statements altogether.Of course, the individual entities must produce entity financial statements, but

consolidation is not required by law. Again, it is highly unlikely that the smallgroup criteria would be examined the following is another extract from theUK Companies House website:

To qualify as small, a group of companies must meet at least two of thefollowing conditions:

aggregate turnover must be not more than 6.5m net (or 7.8m gross) the aggregate balance sheet total must be not more than 3.26m net (or

3.9m gross), and the aggregate average number of employees must be not more than 50.

Also, sub-parents are not required to produce group financial statements; onlyultimate parents are required to do so. So, for one group, only one groupfinancial statement is required.

UK financial reporting divergenceThe UK started the process of convergence with IFRS in 1990. In the period1997 2003, the process became the primary aim of the UK AccountingStandards Board (UK ASB). During that period it was assumed that IFRS wouldbe applicable to all companies by 2005. So, in order to make the crossover aspainless as possible, the UK ASB put in all its efforts to making the UK system

as close as possible to the IFRS system.

Then, in 2005, listed companies adopted IFRS and nothing of any significancehas happened in UK financial reporting since. The UK standards, which in2005 were right up to date, simply froze at that time. With each year, the IFRShave developed, improved and altered while the UK standards have remainedfrozen. As the UK standards get older, they become less aligned with IFRS.This is the process of UK divergence.

Also, the adoption of IFRS for all companies in the UK never happened. Of

course, the quoted companies all adopted IFRS because they had to. Theforward thinking unquoted companies adopted IFRS as well. But many UK

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small and medium companies are stuck in the time-warped setting of UKFinancial Reporting Standards (UK FRS).

It is the differences between UK FRS and IFRS that forms the bulk of the extrasin the Paper P2 (UK) syllabus. It is this UK divergence that is most likely tofeature in a Paper P2 (UK) exam as a variation from the otherwise identicalinternational exam.

NCA DIVERGENCE

The accounting for noncurrent assets in the UK FRS and the IFRS isessentially the same. The only substantial difference of note relates toinvestment properties.

Investment propertiesUnder IFRS, the gain on an investment property goes to the income statement.Under UK FRS, the gain goes to the UK Other Comprehensive Income (OCI),which itself is relabelled the Statement of Total Recognised Gains and Losses(STRGL).

Also, as a minor point, the value to which you revalue an investment propertyunder IFRS is of course the fair value. This simply means the market value.Under UK FRS, the value to which you revalue is the Existing Use Value. Thismeans the UK value could be lower if the asset is land and is being usedinefficiently as a farm or a football pitch, for example.

This is reference C2f in the Paper P2 (UK) Study Guide.

LEASES DIVERGENCEThe accounting for leases under UK FRS and IFRS is almost identical. Butthere are two tiny differences.

The primary test for a finance lease in the UK FRS is risks and rewards, as it isin the IFRS. However, in the UK FRS there is a secondary test that is not in the

IFRS. This secondary test is mathematical and states that a lease is likely to bea finance lease if the present value of minimum lease payments exceeds 90%of the fair value of the asset.

The other difference is a little superficial its more cultural interpretation thansubstance. But the IFRS on leases requires that property leases are split intoland and buildings components, whereas the UK FRS implies that propertyleases are just leases for property, and so no split is required.

This is reference C4c in the Paper P2 (UK) Study Guide.

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SEGMENT DIVERGENCESegment reporting in the UK is essentially the same whether using IFRS or UK

FRS. But there is a difference in philosophy in that the IFRS uses themanagerial philosophy. This argues that segmental divisions should be basedon management analysis of conglomerates. The UK FRS is, of course, hasexisted longer and so uses the older risks and rewards philosophy. This meanssegmental divisions must be based on underlying differences in thebusinesses.

In practice this makes absolutely no difference, as obviously management isgoing to focus on underlying differences in businesses.


EMPLOYEE BENEFIT DIVERGENCEThe accounting for pensions under both streams is identical. The exceptionrelates to the corridor. Of course, the corridor will soon be removed fromIFRS. UK FRS never had a corridor.

This is reference C6e in the Paper P2 (UK) Study Guide.

DEFERRED TAX DIVERGENCE

Both the IFRS and the UK FRS suffer from the same lack of underlying logic.Both contradict the Framework for Financial Reporting. Both are essentiallynumber crunching exercises and applying either will give the same answer inalmost all circumstances.

However, there is a difference in language. The IFRS on deferred tax refers totemporary differences. This idea, as you might remember, refers to thedifference in carrying values carried by the financial accountant and the taxaccountant.

The UK FRS refers to timing differences. This idea refers to the difference

between accumulated costs recognised by the financial accountant and the taxaccountant.

Both as you see look at the differences that arise because financialaccountants use accounting standards and tax accountants use tax legislation.

This is reference C7e in the Paper P2 (UK) Study Guide.

RELATED PARTY DIVERGENCE

The UK ASB and the IASB developed their related party reporting standards

together. So its hardly surprisingly there are almost no differences between thestandards. Both are extremely detailed standards with reams of content. It is

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in the detail where tiny differences may be found. However, there are nodifferences in the principles, and it is these principles that have been the

subject of examination since the standards were issued.


SME DIVERGENCE

As you know, the relatively new IFRS for SMEs allows unquoted companies toproduce financial statements using the less bulky version as opposed to themore detailed full IFRS.

The UK has had an equivalent standard for a number of years. It is called the

Financial Reporting Standard for Small Entities (FRSSE). The FRSSE is basedon the same economic idea as the IFRS for SMEs. This is the idea that reducedfinancial reporting for SMEs is good for the economy as a whole as itencourages entrepreneurs.

The two standards are similar, but it is probably fair to say the UK FRSSE iseven less burdensome than the IFRS for SMEs. One notable difference is that theFRSSE does not require a cash flow statement.

The FRSSE is available for small companies as defined earlier in the article.This is reference C11f in the Paper P2 (UK) Study Guide.

GOODWILL DIVERGENCEAs discussed above, UK financial reporting is stuck in a time warp. So thecalculation of goodwill is on the partial basis only. Furthermore, under the UKFRS, the partial goodwill is depreciated.

This is reference D1j in the Paper P2 (UK) Study Guide.

Martin Jones is a lecturer at the London School of Business and Finance

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RELEVANT TO ACCA QUALIFICATION PAPER F4 (GLO)

2011 ACCA

ICC introduces new International Commercial Terms

Incoterms is an abbreviation of International Commercial Terms. These termshave been published by the International Chamber of Commerce (ICC) since1936 and have been subject to review and updating since that date. The most

recent updates were announced in Paris by the ICC on 16 September 2010.Although earlier versions of Incoterms may still be incorporated into future

contracts if the parties agree, it is likely that most contracts made now willrefer to this latest edition of Incoterms. In order to avoid the possibility of

confusion, contracts should refer specifically to the Incoterms 2010 ratherthan just Incoterms, if the parties wish the new terms to apply. This will avoid

any subsequent dispute as to which set of rules apply. The assumption is that

the new version of the ICC terms will apply to Paper F4 (GLO).

The Incoterms are often to be found in international contracts, and they seek

to provide a common set of rules for the most frequently used international

terms of trade with the aim of removing confusion over their interpretation. For

example, the terms set out exactly who is under the obligation to take control

of and/or insure goods at a particular point in the shipping process. The termsalso deal with the obligation for the clearance of the goods for export or

import, and requirements on the packing of items.

Classes of terms

Among the changes made in the 2010 rules is the reduction in the overallnumber from 13 to 11. This is the result of the removal of four previous terms

and the inclusion of two new ones. In effect, this is a replacement of fourprevious rules, DAF, DES, DEQ and DDU, by two new rules that may be used

irrespective of the agreed mode of transport. These new rules are DAT(Delivered at Terminal), and DAP (Delivered at Place) (see below for more

details).

Changes have also been made to better deal with cargo security and insurance,and the language has been changed to reflect the modern usage in

international trade.

The new rules have been separated into two classes rather than the previous

four categories. The current two classes of terms are:

(i) rules for use in relation to any mode or modes of transportThese can be used in cases where either maritime transport is notinvolved in the carriage of the goods, or where maritime transport is

used for only part of the carriage. This first class includes the followingseven Incoterms that can be used irrespective of the mode of transport

selected and irrespective of whether one or more than one mode oftransport is employed:

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INCOTERMS

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2011 ACCA

EXW Ex Words

FCA Free CarrierCPT Carriage Paid ToCIP Carriage and Insurance Paid To

DAT Delivered at TerminalDAP Delivered at PlaceDDP Delivered Duty Paid

Most of the terms retain their former meanings, so no further

explanation will be provided. However, as DAT and DAP are new andreplace previous delivery terms, they need some, if brief, explanation.

DAT replaces the more specific DEQ (Delivered ex Quay). It requires the

seller to pay for carriage to the terminal, except for costs related toimport clearance, and to assume all risks up to the point that the goodsare unloaded at the terminal. The seller delivers when the goods, having

been unloaded from the arriving means of transport, are placed at the

buyer's disposal at a named terminal at the named port or place of

destination. As indicated, DAT requires the seller to clear the goods for

export where applicable but the seller has no obligation to clear the

goods for import, pay any import duty or carry out any import customs

formalities.

DAP (Delivered at Place) replaces DAF (Delivered at Frontier), DES(Delivered ex Ship) and DDU (Delivered Duty Unpaid). Under DAP, a

seller bears all the costs, other than import clearance costs and risksinvolved in bringing the goods to the named destination. Consequently,

the seller assumes all risks and costs prior to the point that the goodsare ready for unloading by the buyer at the agreed destination.

It should be emphasised that although all the terms listed apply when

there is no maritime transport, they can be used in cases where a ship is

used for part only of the carriage.

(ii)rules for sea and inland waterway transportThese rules apply where the point of delivery and the place to which the

goods are carried to the buyer are both ports. There are foursubstantives rules:

FAS Free Alongside ShipFOB Free on Board

CFR Cost and Freight

CIF Cost Insurance and Freight

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INCOTERMS

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2011 ACCA

Electronic documentation

The previous rules provided for the use of electronic data interchange, where

the parties had agreed its use. The new rules provide for the use of papercommunications or equivalent electronic record or procedure where agreed orcustomary, with customary indicating recognition of current practice in this

regard.

ConclusionIncoterms are a core constituent of international contracts and have frequentlyformed the basis for questions in the Paper F4 Global exam. Although in the

manner of an updating exercise, the new Incoterms 2010 do introducesignificant new rules for students of the Paper F4 Global syllabus to take into

consideration in their preparation for future exams.

David Kelly is examiner for Paper F4

Documents

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