Financial Accounting: Consolidations & Advanced Issues [FA4

Financial Accounting: Consolidations & Advanced Issues [ FA4 ] Examination Blueprint

2014/2015

Purpose

The Financial Accounting: Consolidations & Advanced Issues [ FA4 ] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allocated to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives. In addition, information is provided on the proportion of each question type represented in the examination (that is, multiple choice, quantitative problems, and so on).

Use

Students should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course outline; however, students are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide students with a greater depth of understanding of advanced financial accounting concepts.

Examination Objectives

The objective of the four-hour comprehensive examination is to test CGA students on the prerequisite knowledge that is required for advancement into

PA1 and PA2, so as to ensure that the students have the broad-based knowledge in financial accounting needed to function properly in the association’s capstone courses.

Examination Guidelines for Questions

i) Question Type

The following are guidelines on the types of questions and their approximate weightings:

Question Item Description

Percentage

Weighting

Multiple-choice questions

Short-answer and/or short case-type problems and/or long integrated problems of both a qualitative and quantitative nature.

Questions may take a conceptual approach or they may require technical or analytical skills to derive the correct solution.

Questions may focus on technical or analytical aspects of the material. Short, integrative cases may be used to pull together related issues. For example, a problem may require students to outline alternatives, supporting their recommendations with numerical analysis. Several questions will also be decision oriented, where the student is asked to take the role of creditor, investor, manager or auditor and make a recommendation or a decision based on analysis performed.

20%-30%

70%-80% ii)

Question Content

The following table is organized according to content area and provides information on topics, learning objectives, weighting, competencies and levels of competence. The competencies applicable to a particular module are identified independent of the learning objectives.

Examination sessions: December 2014; March 2015; June 2015; September 2015 Page 1 of 20

Note :

Competency codes (such as PK:FN:11 ) have been added to the “Module Competencies” column for all Level 4 and PACE examination blueprints. These codes are used to identify the competencies. They do not affect students’ use of the blueprint. Please see the CGA Competency Framework for more information.

Table 1 Financial Accounting: Consolidations & Advanced Issues [ FA4 ]

Content

Area

1. International accounting standards and financial instruments — Part I

Topics

1.1

Adoption of international accounting standards

1.2

Financial instruments —

Basics

1.3

Comprehensive income and equity

1.4

Classifying and categorizing financial instruments

1.5

Initial recognition and measurement of financial assets

1.6

Accounting for initial recognition

Learning Objectives



Describe the development of international financial reporting standards (IFRS), and discuss the reasons and processes followed by the AcSB for the adoption of international accounting standards in

Canada.



Define the term financial instrument ; then evaluate, classify, and categorize types of financial instruments.



Describe and apply the standards for comprehensive income and equity.



Explain how IFRS recommendations for categorizing financial instruments are applied.



Explain how IFRS recommendations for initial recognition, classification, measurement, and derecognition of financial assets are applied.



Discuss the requirements for initial recognition of financial instruments; then analyze and compare the use of settlement-date accounting versus tradedate accounting for recording the regularway purchase/sale of a financial asset.

Examination sessions: December 2014; March 2015; June 2015; September 2015

Level 1

Level 1

Level 1

Level 2

Level 1

Level 1

Levels of

Competence

Module Competencies

Group 2: Professionalism

Subgroup: Ethics and Trust

PR:ET:01 Applies professional ethical standards.

Subgroup: Stakeholder Focus

PR:SF:01 Anticipates and meets the needs and expectations of internal and external stakeholders.

Subgroup: Professional Development

PR:PD:02 Contributes to research and technical advancements in the profession.

Group 3: Professional Knowledge

Subgroup: Financial Accounting and Reporting

PK:FA:01 Formulates, analyzes, and processes transactions in accordance with applicable professional standards.

PK:FA:02 Evaluates, interprets, and advises on accounting policies and procedures in accordance with professional standards.

PK:FA:03 Researches, evaluates, and advises on the appropriate accounting treatment for complex transactions.

PK:FA:04 Implements and updates accounting policies and procedures in accordance with professional standards.

PK:FA:05 Interprets and advises on the organization’s reporting obligations.

Weighting

(%)

9%-14%

Page 2 of 20

Content

Area

Topics Learning Objectives Levels of

Competence


PK:FA:07 Develops policies and procedures for documenting and maintaining supporting information for transactions and events.

PK:FA:08 Prepares financial statements and related disclosures appropriate for the external users and in compliance with regulatory standards.

PK:FA:10 Evaluates and adapts financial accounting systems and processes in response to emerging issues.

PK:FA:12 Evaluates and advises on financial accounting and related systems.

Subgroup: Finance and Financial Planning

PK:FN:08 Analyzes and advises on financial instruments to meet the organization’s needs.

Subgroup: Business Environment

PK:BE:03 Anticipates and recognizes market factors and stakeholders’ interests and adapts business decisions and processes.

Weighting

(%)


Content

Area

Topics

2. Financial instruments — Part II

2.1 Accounting after initial recognition

2.2 Special issues: Loans and receivables, related party transactions, interest-free loans

2.3 Derivatives: Futures, options, and swap contracts

2.4 Embedded derivatives

2.5 Non-financial instruments

2.6 Impairments in value

2.7 Reclassification and subsequent measurement

2.8 Presentation and disclosure

Learning Objectives Levels of

Competence



Identify and explain the requirements for accounting after initial recognition of financial instruments.



Identify and explain the special issues associated with, and the requirements for accounting for, loans and receivables, related party transactions, and interest-free loans.



Define, describe, and apply the requirements for derivatives: futures, options, and swap contracts.



Describe and apply the requirements for embedded derivatives.



Describe and apply the requirements for non-financial instruments to which IAS 39 applies.



Discuss the requirements for recognition and recording of impairments for various financial instruments.



Discuss the requirements for reclassification and measurement for various financial instruments.



Identify and explain presentation and disclosure requirements for financial instruments.

Level 1

Level 1

Level 1

Level 1

Level 1

Levels 1 & 2

Level 1

Level 1













PK:FA:08 Prepares financial statements and related disclosures appropriate for external users and in compliance with regulatory standards.






Weighting

(%)

7%-11%


Content

Area

Topics

3. Introduction to intercorporate investments

3.1

Control, significant influence, and no significant influence

3.2

Equity method

3.3

Business combinations

3.4

Recording and reporting

3.5

Overview of consolidation procedures

3.6

Calculation of goodwill and allocation of acquisition differential

3.7

Consolidation with

100% ownership

3.8

Negative goodwill

3.9

Consolidation with less than 100% ownership

3.10

Consolidation: Related issues




Define the following terms: control , significant influence , and no significant influence .



Explain the use of the equity method for recording and reporting investments subject to significant influence.



Discuss the IFRS approach to business combinations, describe the two other theoretical approaches, and explain reverse takeovers.



Discuss the difference between recording and reporting, and explain how investors must report control, significant influence, and no significant influence investments.



Outline the steps in the consolidation process.



Calculate goodwill and allocate the acquisition differential using the acquisition method for a wholly owned subsidiary.



Prepare consolidated financial statements using the working paper and direct approaches for a wholly owned subsidiary at the date of acquisition.



Explain negative goodwill and how it should be allocated in a business combination.



Discuss the entity theory and parent company extension theory approaches to consolidation, including how each one measures non-controlling interests.



Explain contingent consideration and financial statement disclosure of interest in other entities.


Levels of

Competence

Level 1

Level 2

Level 1

Level 1

Level 1

Level 2

Level 1

Level 1

Levels 1 & 2

Level 1





Subgroup: Problem Solving

PR:PS:03 Integrates and analyzes data for patterns, relationships, and trends.













Subgroup: Information Technology

PK:IT:02 Selects and uses appropriate business technology tools in the workplace.

Weighting

(%)

6%-9%

Page 5 of 20

Content

Area

Topics

3.11

Using consolidation worksheets




Reference information from computer spreadsheets to analyze the relationship between the equity method of recording and consolidation.

Levels of

Competence

Level 1

Module Competencies Weighting

(%)


Content

Area

Topics

4. Consolidation subsequent to acquisition

4.1

Accounting for goodwill

4.2

Acquisition differential and consolidation one year after acquisition

— Cost method

4.3

Consolidation of wholly owned subsidiaries subsequent to the first year — Cost method

4.4

Consolidation of nonwholly owned subsidiaries subsequent to acquisition — Cost method

4.5

Intercompany receivables and payables

4.6

Consolidation of subsidiaries — Equity method

4.7

Worksheets subsequent to acquisition — Cost method



Explain how to calculate goodwill impairment.




Prepare the acquisition differential amortization and impairment schedule and consolidated financial statements for a parent and its wholly owned subsidiary one year after acquisition when the parent uses the cost method.



Prepare consolidated financial statements for a parent and its wholly owned subsidiary subsequent to the first year after acquisition when the parent uses the cost method.



Prepare consolidated financial statements for a parent and its non-wholly owned subsidiary subsequent to acquisition when the parent uses the cost method.



Explain why and how intercompany receivables and payables are eliminated in consolidated financial statements.



Prepare consolidated financial statements for a parent and its subsidiary subsequent to acquisition when the parent uses the equity method.

 Use computer worksheets to prepare eliminating journal entries and consolidated financial statements subsequent to acquisition when the parent uses the cost method.

Levels of

Competence

Level 1

Level 1

Level 1

Level 1

Level 1

Level 1

Level 1














PK:FA:06 Ensures the preparation of timely, reliable, and relevant financial information.







Weighting

(%)

10%-12%


Content

Area


Competence



Weighting

(%)


Content

Area

Topics

5. Intercompany transactions

5.1

Intercompany revenues and expenses

5.2

Downstream and upstream sales

5.3

Intercompany inventory profit

5.4

Unrealized profit from intercompany inventory sales

5.5

Realized profit from intercompany inventory sales

5.6

Intercompany profit from the sale of land

5.7

Intercompany profit in depreciable assets

5.8 Consolidation with intercompany unrealized profit




Discuss the impact of the elimination of intercompany revenues and expenses on consolidated net income.



Define downstream and upstream sales and analyze their effect on the allocation of profit from intercompany transactions.



Calculate intercompany inventory profit using the gross-profit-on-sales and markupon-cost methods.

 Explain how upstream and downstream unrealized intercompany inventory profits are included in consolidated financial statements.



Prepare consolidated financial statements that include upstream and/or downstream realized intercompany inventory profit.



Calculate the impact on consolidation of unrealized profit from an intercompany sale of land.



Calculate the impact on consolidation of unrealized profit from an intercompany sale of a depreciable asset.



Use computer-generated working papers and supporting schedules to prepare eliminating journal entries and consolidated financial statements involving intercompany profit.

Levels of

Competence

Level 1

Level 1

Level 1

Level 1

Level 1

Level 1

Level 2

Level 1






Subgroup: Financial Accounting and

Reporting






PK:FA:06 Ensures the preparation of timely, reliable, and relevant financial information.








Weighting

(%)

12%-16%


Content Topics Learning Objectives

Area

6. Ownership and other consolidation reporting issues

6.1

Increase in ownership interest

6.2

Decrease in ownership interest: Sale of shares by the parent

6.3

Decrease in ownership:

Parent’s nonparticipation in subsidiary’s share issue

6.4

Subsidiary’s preferred shares not owned by the parent

6.5

Subsidiary’s preferred shares owned by the parent

6.6

Indirect shareholdings

6.7

Reporting joint ventures



Explain the accounting treatment of an investment change from no significant influence to significant influence and calculate increases in the parent’s ownership interest, including step purchases, when control has been achieved.



Perform consolidation calculations for a decrease in ownership subsequent to sale of the subsidiary’s shares by the parent, including the parent’s gain or loss on disposal, when the parent ceases to have control over the subsidiary.



Perform consolidation calculations for the parent’s non-participation in the subsidiary’s share issue, including the gain or loss on deemed disposal of the subsidiary’s shares.



Describe and calculate the effects of a subsidiary’s preferred shares held outside the consolidated entity on the preparation of consolidated financial statements.



Calculate the effect on the purchase valuation of a subsidiary’s preferred shares, and prepare calculations toward consolidated financial statements when the subsidiary’s preferred shares are held by parties outside the consolidated entity and when they are held by the parent.



Calculate consolidated net income and non-controlling interest for a parent that has gained control over subsidiaries through indirect shareholdings.



Identify joint ventures and explain how they are reported.

Levels of

Competence

Level 3

Level 3

Level 2

Level 2

Level 2

Level 3

Level 1















PK:FA:09 Develops, prepares, analyzes, and interprets relevant financial and non-financial performance measures.




PK:FN:10 Evaluates and advises on capital investments, mergers and acquisitions, or sale of a business.

Weighting

(%)

6%-10%

Page 10 of 20

Content

Area

Topics

6.8

Accounting income before tax and taxable income

6.9

Disclosure and accounting for deferred income tax

6.10

Segment reporting and predictive ability




Identify the sources of differences between accounting income before tax and taxable income, explain their accounting treatment, and determine the resulting deferred income tax (DIT) asset or liability.



Describe revaluations of carrying amounts

(temporary differences) and disclosure requirements, and explain the accounting treatment of temporary differences and ensuing tax effects.



Explain the benefits of segmented financial reporting in assessing the quality and predictability of a company’s earnings, and describe the current standards for segment disclosures.

Levels of

Competence

Level 2

Level 2

Levels 1 & 2


Subgroup: Taxation

PK:TX:01

Determines and advises on taxpayer’s regulatory requirements and exposure.

PK:TX:08 Evaluates and advises on tax implications of alternative business decisions.

Weighting

(%)


Content

Area

Topics

7. Foreign currency translation and hedge accounting


7.1

Foreign currency transactions

7.2

Reporting foreign currency denominated monetary and nonmonetary items

7.3

Introduction to hedge accounting

7.4

Fair value hedge

7.5

Cash flow hedge



Record transactions denominated in a foreign currency in accordance with IFRS recommendations.



Discuss the theoretical issues of reporting foreign currency denominated monetary and non-monetary items.



Explain why hedge accounting is used, and describe hedging using forward contracts.

 Define fair value hedge, and discuss its rationale, application, and accounting treatment.



Define cash flow hedge, and discuss its rationale, application, and accounting treatment.

Levels of

Competence

Level 1

Level 1

Level 1

Level 1

Level 1





Subgroup: Professional Self-evaluation

PR:SE:02 Knows when and how to refer to other professionals and experts.














Weighting

(%)

7%-10%


Content

Area


Competence


Subgroup: Business Environment

PK:BE:03 Anticipates and recognizes market factors and stakeholders’ interests, and adapts business decisions and processes.

Weighting

(%)


Content

Area

Topics Learning Objectives

8. Translation and consolidation of foreign subsidiaries

8.1

Financial statement translation

8.2

Self-sustaining foreign operations and subsidiaries accounted for using the foreign currency transactions approach

8.3

Translating and consolidating foreign subsidiaries

8.4

Hedging a net investment in a selfsustaining foreign operation

8.5

Foreign currency translation and consolidation

8.6

Foreign subsidiaries:

Consolidation with an acquisition differential



Describe financial statement translation methods, and explain the difference between economic exposure and accounting exposure caused by fluctuations in foreign exchange rates.



Determine whether a subsidiary should be accounted for as a self-sustaining foreign operation or using the foreign currency transactions approach, and prescribe the appropriate accounting method for translating its financial statements.



Calculate exchange gains and losses, and translate financial statements of foreign subsidiaries.



Describe reporting requirements for hedging a net investment in a selfsustaining foreign operation.



Prepare consolidated financial statements for foreign subsidiaries using computergenerated translated financial statements.



Prepare the acquisition differential amortization and impairment schedule and the ensuing consolidated financial statements for a purchased foreign subsidiary.

Levels of

Competence

Level 2

Level 1

Level 1

Level 1

Level 1

Level 1






PR:PS:02 Collects, selects, verifies, and evaluates information relevant to the problem













PK:FN:03 Develops financial risk management policies and monitors exposure in order to manage the level of financial risk.


Weighting

(%)

9%-14%

Page 14 of 20

Content

Area


Competence





Weighting

(%)


Content Topics

Area

9. Financial reporting in the not-for-profit sector

9.1

Not-for-profit organizations

9.2

Not-for-profit reporting issues

9.3

Introduction to fund accounting

9.4

Application of NFPO standards

9.5

Budgetary control

9.6

Financial reporting for governments

9.7

GAAP for public sector organizations




Define not-for-profit organizations and compare their financial reporting objectives with those of profit-oriented organizations.



Explain the major financial reporting issues in not-for-profit organizations.



Explain the basics of accounting for, and reporting of, contributions under the restricted fund and deferred contribution methods.

 Determine appropriate accounting policies for not-for-profit organizations.



Explain how formal recording of a budget helps NFPO managers control operations.



Explain the reporting implications of governments’ unique characteristics, and describe the key messages the financial statements should convey.



Explain the concept of the public sector, determine the handbook applicable to each component of the public sector, and describe the objectives of public sector financial statements.

Level 1

Level 1

Level 1

Levels 1 & 2

Level 1

Level 3

Level 3

Levels of

Competence


Group 1: Leadership

Subgroup: Organizational Effectiveness

LD:OE:02 Designs, evaluates, and reports on internal control systems to ensure organizational effectiveness.





PR:ET:01 Applies professional ethical standards

(understands and follows the word and spirit of the

CGA-Canada Code of Ethical Principles and Rules of Conduct , and takes action in response to situations that are contrary to the ethical code of the profession).

PR:ET:02 Exercises integrity and a high level of professional judgment.

PR:ET:03 Maintains objectivity and independence in appearance and fact (avoids real and perceived conflicts of interest).

PR:ET:04 Protects the public interest (maintains and raises the visibility of the ethical nature of the profession and professional accounting standards).

PR:ET:05 Plans and exercises due diligence (plans and constructs due diligence checklist for mergers and acquisitions or public listing cases, conducts financial statement reviews with financial due diligence, conducts operations and manages with due diligence).

Subgroup: Communication

PR:CM:03 Communicates information in a timely, clear, and concise manner.



PK:FA:01 Formulates, analyzes, and processes transactions in accordance with applicable

Weighting

(%)

8%-14%


Content

Area


Competence

Module Competencies professional standards.









Subgroup: Management Accounting

PK:MA:02 Develops, analyzes, and monitors operational plans and budgets, and recommends corrective action as needed.

Weighting

(%)


Content

Area

Topics

10. Ethics, additional issues, and integration

10.1

Case: Business combinations, foreign currency issues, and management issues

10.2

Case: Business combinations and intercompany arrangements

10.3

Case: Not-for-profit organizations

10.4

Case: Ethics




Apply the standards and procedures learned in Financial Accounting: Consolidations and Advanced Issues to a case study.









Apply the standards and procedures learned in Financial Accounting: Consolidations and Advanced Issues and the requirements of the Code of Ethical Principles and Rules of Conduct to a case study.

Levels of

Competence

Level 1

Level 1

Level 1

Level 1





Subgroup: Professional Development

PR:PD:01 Engages in continuing professional development to maintain and enhance professional knowledge and skills.

PR:PD:05 Applies new learning for the benefit of stakeholders.


PR:ET:01 Applies professional ethical standards

(understands and follows the word and spirit of the

CGA-Canada Code of Ethical Principles and Rules of Conduct, and takes action in response to situations that are contrary to the ethical code of the profession).

PR:ET:02 Exercises integrity and a high level of professional judgment.

PR:ET:03 Maintains objectivity and independence in appearance and fact (avoids real and perceived conflicts of interest).

PR:ET:04 Protects the public interest (maintains and raises the visibility of the ethical nature of the profession and professional accounting standards).

PR:ET:05 Plans and exercises due diligence (plans and constructs due diligence checklist for mergers and acquisitions or public listing cases, conducts financial statement reviews with financial due diligence, conducts operations and manages with due diligence).


PR:PS:02 Collects, selects, verifies, and evaluates information relevant to the problem.


PR:PS:04 Generates and evaluates alternative solutions.

Weighting

(%)

6%-10%


Content

Area

Topics Learning Objectives


Levels of

Competence


Subgroup: Integrative Approach

PR:IA:02 Evaluates the interrelationship of an issue on different functions of the organization and applies concepts and approaches within and across functional areas to develop integrative solutions.

Subgroup: Communication

PR:CM:02 Prepares information in formats appropriate for specific purposes.










PK:FA:11 Designs financial accounting and related systems.



PK:FN:07 Manages cash flow and working capital.


Weighting

(%)

Page 19 of 20

Content

Area


Competence


Subgroup: Taxation

PK:TX:01 Determines and advises on taxpayer’s regulatory requirements and exposure.

PK:TX:09 Designs and advises on international tax planning.

Weighting

(%)


Financial Accounting: Consolidations & Advanced Issues [FA4

i) Question Type

The following are guidelines on the types of questions and their approximate weightings:

Question Content

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Financial Accounting: Consolidations & Advanced Issues [FA4

i) Question Type

The following are guidelines on the types of questions and their approximate weightings:

Question Content

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