-SQA-SCOTTISH QUALIFICATIONS AUTHORITY HIGHER NATIONAL UNIT SPECIFICATION GENERAL INFORMATION -Unit number- 6430959 -Unit title- -Superclass category- FINANCIAL REPORTING AND ANALYSIS AK -Date of publication- (month and year) -Originating centre for unit- -DESCRIPTION- ----------------------------------------- GENERAL COMPETENCE FOR UNIT: Producing financial statements for individual companies for publication, groups of companies, and analysing and reporting on financial statements. Throughout this unit the term Accounting Standard is used to cover both statements of Standard Accounting Practice and Financial Reporting Standards. OUTCOMES: 1. explain the regulations and underlying concepts governing the preparation of the financial statements of limited liability companies; 2. produce the financial statements for a limited company for publication; 3. prepare consolidated financial statements for groups of companies; 4. analyse and report on company final accounts. CREDIT VALUE: 2 HN Credits. ACCESS STATEMENT: Access to this unit is at the discretion of the centre. However, it would be beneficial if the candidate has some skills in basic financial accounting including the preparation of a company s accounts for internal use. This may be evidenced by possession of Higher National Unit 6430456 Preparation and Analysis of Final Accounts. -----------------------------------------
Additional copies of this unit can be obtained from: The Committee and Administration Unit, SQA, Hanover House, 24 Douglas Street, Glasgow G2 7NQ, (Tel: 0141-242 2168). At the time of publication the cost is 1.50 per unit (minimum order 5.00). 2
HIGHER NATIONAL UNIT SPECIFICATION STATEMENT OF STANDARDS Unit number: 6430959 Unit title: FINANCIAL REPORTING AND ANALYSIS Acceptable performance in this Unit will be the satisfactory achievement of the standards set out in this part of the specification. All sections of the statement of standards are mandatory and cannot be altered without reference to SQA. OUTCOME 1. EXPLAIN THE REGULATIONS AND UNDERLYING CONCEPTS GOVERNING THE PREPARATION OF THE FINANCIAL STATEMENTS OF LIMITED LIABILITY COMPANIES PERFORMANCE CRITERIA (a) (b) (c) (d) The description of accounting concepts and principles and their effect on asset valuation and income measurement is correct. The analysis of strengths and shortcomings of alternative accounting models is correct. The description of the relationship between Companies Acts and Accounting Standards is accurate. The description of the content and impact of Accounting Standards is accurate. RANGE STATEMENT Accounting model: historical cost; current purchasing power; current value; current cost accounting. Companies Acts: Re-inforcement of standards; conflicts with Standards. EVIDENCE REQUIREMENTS Written evidence must be submitted to demonstrate that all the performance criteria for this outcome have been met and the full range covered for the outcome to be credited. 3
OUTCOME 2. PRODUCE THE FINANCIAL STATEMENTS FOR A LIMITED COMPANY FOR PUBLICATION PERFORMANCE CRITERIA (a) (b) (c) (d) (e) (f) The treatment of items in the financial statements is correct in accordance with legislation and Accounting Standards. The notes to the accounts, including disclosure of accounting policies and fixed assets schedule, are in accordance with legislation and Accounting Standards. The format of accounts, including separate disclosure of the results of continuing and discontinuing operations, is in accordance with current Accounting Standards. The treatment of Taxation items is correct in terms of the relevant Accounting Standards. The company's stated accounting policies are correctly applied. The accounts produced are neat, accurate and legible. RANGE STATEMENT Legislation: Current Companies Acts. Taxation in Accounts: corporation tax liability; payments to account for corporation tax; deferred taxation. EVIDENCE REQUIREMENTS Written evidence must be submitted to demonstrate that all the performance criteria for this outcome have been met and the full range covered for the outcome to be credited. Evidence covering all performance criteria would involve the preparation of a set of the financial statements of a limited company for publication from a given Trial Balance and additional data, involving the application of at least 6 Accounting Standards. OUTCOME 3. PREPARE CONSOLIDATED FINANCIAL STATEMENTS FOR GROUPS OF COMPANIES PERFORMANCE CRITERIA (a) (b) The characteristics of the acquisition and merger methods of accounting for groups of companies are accurately described. The conditions governing the uses of the two methods are accurately stated. 4
(c) (d) (e) (f) (g) The treatment or consolidation of inter-company transactions, inter-company indebtedness and unrealised profit on stock is correctly implemented. The principles of the acquisition method, in preparing the consolidated Balance Sheet of a group consisting of a holding company and one subsidiary, are correctly applied. The principles of the acquisition method, in preparing the consolidated Profit and Loss Account of a group comprising holding company and one subsidiary, are correctly applied. The description of equity accounting and the method of recording the results of associated undertakings in group accounting are correct in terms of Accounting Standard. The definition of associated undertaking is correct in terms of Accounting Standard. RANGE STATEMENT Principles of the Acquisition Method: pre-acquisition profits; goodwill on consolidation; minority interests; fair value of assets on acquisition. EVIDENCE REQUIREMENTS Written evidence must be submitted to demonstrate that all the performance criteria for this outcome have been met and the full range covered for the outcome to be credited. Assignments covering performance criteria (c) to (f), would comprise the preparation of a consolidated profit and loss account, and balance sheet of a group of companies comprising a Holding Company and one subsidiary. OUTCOME 4. ANALYSE AND REPORT ON COMPANY FINAL ACCOUNTS PERFORMANCE CRITERIA (a) (b) (c) (d) (e) (f) The formulae used in ratio analysis are appropriate and the results stated in accordance with good reporting practice. The calculation of the specified ratios is correct. The findings stated in the report are clear, with supporting figures included in appendices. The analysis and recommendations are appropriate to the specified user of the report and include a consideration of the investment potential of the company. The market value of the shares is included in the ratio analysis. The analysis takes into account the capital structure of the company. 5
RANGE STATEMENT Types of ratios: profitability; management of assets; liquidity and investment; gearing. Capital structure: ordinary shares; preference shares; long-term loans. EVIDENCE REQUIREMENTS Evidence, produced using word processing and spreadsheet package, possibly supported by an oral presentation, is required to demonstrate that all the performance criteria for this outcome have been met and the full range covered for the outcome to be credited. MERIT STATEMENT: To gain a pass in this unit, a candidate must meet the standards set out in the outcomes, performance criteria, range statements and evidence requirements. To achieve a merit in this unit, a candidate must demonstrate a superior or more sophisticated level of performance. In this unit this might be shown in the following ways: (a) (b) (c) (d) clarity of expression and presentation; depth of underpinning knowledge; grasp of concepts; accuracy of information provided and calculations produced. ASSESSMENT In order to achieve this unit, candidates are required to present sufficient evidence that they have met all the performance criteria for each outcome within the range specified. Details of these requirements are given for each outcome. The assessment instruments used should follow the general guidance offered by the Scottish Qualifications Authority (SQA) assessment model and an integrative approach to assessment is encouraged. (See references at the end of support notes). Accurate records should be made of the assessment instruments used showing how evidence is generated for each outcome and giving marking schemes and/or checklists, etc. Records of candidates achievements should be kept. These records will be available for external verification. SPECIAL NEEDS Proposals to modify outcomes, range statements or agreed assessment arrangements should be discussed in the first place with the external verifier. 6
Copyright SQA 1999 Please note that this publication may be reproduced in whole or in part for educational purposes provided that: (i) (ii) no profit is derived from the reproduction; if reproduced in part, the source is acknowledged. 7
HIGHER NATIONAL UNIT SPECIFICATION SUPPORT NOTES Unit number: 6430959 Unit title: FINANCIAL REPORTING AND ANALYSIS SUPPORT NOTES: This part of the unit specification is offered as guidance. None of the sections of the support notes is mandatory. NOTIONAL DESIGN LENGTH: SQA allocates a notional design length to a unit on the basis of time estimated for achievement of the stated standards by a candidate whose starting point is as described in the access statement. The notional design length for this unit is 80 hours. The use of notional design length for programme design and timetabling is advisory only. CONTENT/CONTEXT In delivering this unit an integrative approach to the teaching and assessment of the whole unit is desirable. While each learning outcome is stand alone, in accounting practice it is essential to be aware of the influence of the underlying concepts and the regulatory framework on all aspects of the accountant's work. This aspect should be brought to candidates' attention in the approach to teaching the unit. Outcome 1 Principles and Concepts would include: entity, duality, money measurement, historic cost, time period for reporting, objectivity, materiality, going concern, matching, prudence, consistency, accounting bases, policies. The principle of substance over form should be covered by reference to appropriate Accounting Standards. The roles of the bodies involved in the process of setting financial Reporting Standards - Accounting Standards Board, Financial Reporting Council, Urgent Issues Task Force, Review Panel; should also be brought to the attention of candidates, as should the matters addressed by current Standards. The following table discloses the level of knowledge required to be demonstrated by candidates in achieving assessments. Levels of knowledge required to be displayed by candidates of financial reporting principles and standards for assessment purposes. APPRECIATION (1) To have a basic understanding of the principles or Standard. 8
KNOWLEDGE (2) To have knowledge of the impact of the principle on financial reporting or a detailed knowledge of the contents of the Standard. SKILL (3) To be able to apply the principle or Standard to the solution of problems of treatment or disclosure where the facts of a situation are given. THE PRINCIPLES 1 2 3 Historic cost * Current purchasing power * Current value * Current cost * Entity * Duality * Money measurement * Time period for reporting * Objectivity * Materiality * Going concern * Matching * Prudence * Consistency * THE STANDARDS SSAP S 1 * 2 * 3 * 4 * 5 * 8 * 9 * 12 * 13 * 15 * 17 * 18 * 19 * 21 * 22 * 24 * 25 * 9
FRS S 1 * 2 * 3 * 4 * 5 * 6 * 7 * 8 * Statement of principles * ASSESSMENT PROCEDURES The knowledge base set out in outcome 1 may be assessed by an integrative assignment covering all performance criteria, eg an extended response instrument might be employed, including for performance criterion (a) the consideration of at least 6 basic principles and, for performance criterion (d) 8 Accounting Standards. The computational elements of outcomes 2 and 3 should be tested by practical exercises. For Outcome 2 a comprehensive assignment covering all performance criteria would involve the preparation of a set of the financial statements of a limited company for publication from a given trial balance and additional data, involving the application of at least 6 Accounting Standards. For Outcome 3 performance criteria (a), (b), (f) and (g) might be covered by a restricted response assignment while assignments covering performance criteria (c) to (e), would comprise the preparation of a consolidated profit and loss account, and balance sheet of a group of companies comprising a Holding company and one subsidiary. In assessing every effort should be made to cover as large a number of Accounting Standards as possible. This might best be achieved by careful coordinating of the assessment material for outcomes 1 and 2 to provide as wide as possible a spread of coverage of the relevant Standards. A case study, integrating all performance criteria would be most appropriate for outcome 4. This would be best served by a case study which requires a report on the results disclosed by given sets of financial statements. The analysis should include the calculation/use of not less than 12 ratios. An oral presentation of the report, involving role play might be included as part of the assessment. REFERENCES 1. Guide to unit writing, SQA, 1993 (Code: A018). 2. Guide to assessment, SQA, 1993 (Code: B005). 3. Guide to certification, SQA, 1996 (Code: F025). 4. Notes for unit writers, SQA, 1995 (Code: A041). For details of other SQA publications, please contact staff in the Sales and Despatch section (Tel: 0141-242 2168) who can supply you with a copy of the publication list (Code: X037). 10
Copyright SQA 1999 Please note that this publication may be reproduced in whole or in part for educational purposes provided that: (i) (ii) no profit is derived from the reproduction; if reproduced in part, the source is acknowledged. 11