Fa4 Study Notes

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Module 1 – 3 (Chapter 1 – 4)
Chapter 1 Survey of International Accounting * Purposes for financial statements: comparability, information usefulness -> accounting harmonization * Factors that influence a country’s accounting standards: 1. Role of Taxation 2. Level of Development of Capital Markets – fairly sophisticated investors demand current and useful information from those who have received their capital 3. Different Legal Systems 4. Ties between Countries 5. Inflation Levels

Chapter 2 Investments in Equity Securities * 5 types of share investments * Strategic Investments (Investor intends to establish or maintain a long-term operating relationship with the entity in which the investment is made): * Control – Full Consolidation * Significant Influence – Equity Method * Joint Ventures – Proportionate Consolidation * Non-Strategic Investments: * Fair Value through Profit and Loss (FVTPL) – Fair Value Method * Available-For-Sale (AFS) – Cost Method * IFRS 9 requires all nonstrategic equity investments be valued at fair value; IAS 9 is no longer exists to quote investments at cost if no fair value be reliably measured * Available-for-sale is now a separate category of equity investment and the initial recognition can elect to present the fair value changes on an equity investment that is not held for short-term trading in other comprehensive income (OCI) – Gain or losses are cleared out of OCI and credited or charged directly to retained earnings when the investment is sold and are never recycled through net income

Control (over 50% voting shares) * Investment in Sub will be removed from Parent’s balance sheet and replacing it with assets & liabilities from the sub’s balance sheet * Control exists if parent company has the power to direct the activities of sub to generate returns for the parent company – can determine the key operating

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