Embracing

change.
Shaping
futures.
Strategic Business Reporting
– Read the mind of an SBR marker
 Contents

Introduction 4

Question 1 – first requirement 5

> Observations on the requirement 5

> Notes on Candidate one’s answer Q1 (a) (i) 5

> Notes on Candidate two’s answer Q1 (a) (i) 7

Question 1 – second requirement 8

> Observations on the requirement 8

> Notes on Candidate one’s answer Q1 (a) (ii) 8

> Notes on Candidate two’s answer Q1 (a) (ii) 8

Read the mind of an SBR marker 2

 Question 2 9

> Observations on the requirement 9

> Notes on candidate one’s answer 11

> Notes on candidate two’s answer 12

Specimen exam worked answers 13

> Question 1 (a) (i) candidate one 13

> Question 1 (a) (i) candidate two 15

> Question 1 (a) (ii) candidate one 17

> Question 1 (a) (ii) candidate two 18

> Question 2 candidate one 19

> Question 2 candidate two 21

Read the mind of an SBR marker 3

Introduction
I am a member of the team who will mark Strategic Business Reporting. This article is
designed to give you, the candidate, an insight into my mind, so that you can better
understand what a marker will be looking for when it comes to marking your Strategic
Business Reporting script.
By giving you an insight into a marker’s thinking, At the time of writing there have been no live exam
explaining what we are trained to look for, what we award sittings of Strategic Business Reporting. For the purpose
marks for, and to give you the reasons why marks may not of this article, therefore, two sets of student-style answers
be awarded, you will be better prepared to take the exam. were written to requirements from the specimen exam,
It will help you fulfil your potential by being better able to under timed conditions for me to mark.
translate your knowledge, experience and judgement into
To support your reading of this article, follow this link
accumulating the necessary marks to pass.
to view the Strategic Business Reporting specimen
exam click the link here.

Translate your knowledge,

experience and judgement
into accumulating the
necessary marks to pass.

Read the mind of an SBR marker 4

Question 1 – first requirement
The first requirements selected from the specimen Notes on candidate one’s answer Q1 (a) (i)
exam come from Q1, on the topic of group accounts. The following notes explain the mark allocations
Traditionally this topic was examined at Q1 in P2 on the candidate’s answer.
Corporate Reporting as a number cruncher, but
going forward under Strategic Business Reporting it is Note 1
expected that you will not be required to prepare a whole No mark is awarded. This is an abstract definition that
consolidated financial statement from scratch. Rather, is not applied to the scenario and as such it does not
with Strategic Business Reporting, the expectation is explain to the directors of Kutchen how the goodwill of
that you will be required to only perform some specific House or Mach should have been calculated. No half
computations relating to the consolidation process (or marks can be awarded.
extracts from the group accounts) and, crucially, to provide
supporting explanations of the calculations. Q1 (a) parts (i) Note 2
and (ii) of the Strategic Business Reporting specimen exam One mark is awarded for each of:
reflects this.
§§ The explanation of the contingent consideration.
Let’s look at the first requirement of Q1.
§§ The explanation of the NCI.
Required: (a) (i) Explain to the directors of Kutchen,
with suitable workings, how goodwill should have
Note 3
been calculated on the acquisition of House and Mach
No mark is awarded as this statement is too vague. It
showing the adjustments which need to be made to
is not applied. Whilst it is appropriate to refer to basic
the consolidated financial statements to correct any
principles, for a mark to be awarded here it needed to
errors by the finance director.
have been tied into the actual scenario of the question.
(10 marks)
Thus an answer that stated ‘The directors of Kutchen
are incorrect in omitting the NCI and excluding the
Observations on the requirement contingent shares from the consideration’ would
This part of the question requires both an explanation have been awarded a mark.
to the directors as to how goodwill should have been
Note 4
calculated, as well as the calculation of goodwill and the
One mark is awarded for the correct calculation of the
adjustments to correct any errors. The marking guide
goodwill of House. As no half marks are awarded and
splits the marks 6/4 in favour of the explanation over the
there are several calculations necessary to correctly
calculations. This means that there is only one mark for
determine this goodwill figure, it would have been
the calculation of each subsidiary’s goodwill and one mark
possible to award a mark even if the actual goodwill
for the corrections required relating to each subsidiary.
calculation had been incorrect if there had been
There are three marks available for the explanation as to
a demonstration of understanding the basic issue.
how goodwill for each of the two subsidiaries should have
been calculated.
Follow this link to see candidate one’s answer
to Q1 (a) (i). The marking guide splits
View it here
the marks 6/4 in favour
of the explanation over
the calculations.

Read the mind of an SBR marker 5

Note 5
For the journal entry trying to show the correction
necessary relating to House, no mark is awarded as it
shows no understanding of the effect of the correction.
The production of a journal
The production of a journal entry is a suitable working entry is a suitable working
to express the necessary adjustments, but note that
journal entries were not specifically asked for in the
to express the necessary
question. The mark would be awarded for adopting adjustments.
an increase/decrease approach.

For example:

Increase Goodwill 10.38

Decrease Profits (Retained Earnings) 8
Increase NCI 16.38
Increase Other Components of Equity 2

Note 6
No mark is awarded. This is just repetition.

Note 7
One mark is awarded for each detail of the accounting
treatment. Both details are supported by relevant points.

Note 8
One mark is awarded for the correct calculation of the
goodwill of Mach.

Note 9
The journal entry attempts to show the correction required
but shows no understanding and no mark is awarded.
The mark for candidate one for Q1 (a) (i) is 6/10.

TOTAL:

6/10

Read the mind of an SBR marker 6

Notes on candidate two’s answer Q1 (a) (i)
Follow this link to see candidate two’s answer to Q1.
This answer is neither
View it here applied or detailed enough
to merit more than one
Note 1
No mark is awarded for the attempted calculation of
mark out of three.
the goodwill relating to House. There are two errors
Note 4
of principle included in this calculation, in that NCI is
The mark for the goodwill of Mach is awarded as, although
calculated using the wrong method and the parent’s
incomplete, it does demonstrate understanding of the
investment does not correctly measure the fair value
key issue of the land element of the consideration being
of the contingent shares issued. No half marks are
included at fair value.
available for markers to award.
Note 5
Note 2
One mark is awarded, out of three possible marks, for
The mark is awarded for the attempt at the correcting
this explanation of the calculation of goodwill relating
adjustment. In principle it is right to recognise NCI
to Mach. The key points around the measurement of
(though the number is incorrect it would be wrong
the non-controlling interest are not mentioned.
to penalise a candidate twice) and there is a credit
to retained earnings. It is possible to be awarded Note 6
a mark for a numerical answer where the answer is No marks are awarded. The requirement was to show
not 100% correct. the adjustments and this has not been addressed.
Note 3 The mark for candidate two Q1 (a) (i) is 4/10.
One mark is awarded, out of three possible marks,
for this explanation. Let us remind ourselves of the
TOTAL:
question – explain to the directors of Kutchen how
goodwill should have been calculated on the
acquisition of House – and I hope you can see that
this answer is neither applied or detailed enough 4/10
to merit more than one mark out of three.

Read the mind of an SBR marker 7

Question 1 – second requirement
Observations on the requirement Notes on candidate two’s answer Q1 (a) (ii)
Follow this link to see candidate two’s answer to Q1.
Required: (a) (ii) Explain, with suitable calculations,
how the gain or loss on the sale of Niche should have
been recorded in the group financial statements. View it here
(5 marks)
Note 1
Again this part of the question requires both explanation The requirement of the question is to calculate the gain
as well as a numerical calculation. A review of the marking to the group on the disposal. The calculation given is the
guide shows a 3/2 split, again placing a greater weight gain to the parent company and as such is not relevant
of marks to the written explanation over the formulaic to the requirement. Marks are never deducted for wrong
number crunching. answers but the candidate has wasted precious time,
probably because they did not read the requirement
Notes on candidate one’s answer Q1 (a) (ii) of the question properly.
Follow this link to see candidate one’s answer to Q1.
Note 2
No mark is awarded. To include the impairment loss for
View it here
goodwill in the calculation of the gain to the group on
the disposal of a subsidiary shows a lack of understanding
Note 1 that it is the asset of the unimpaired goodwill that is being
No marks are awarded as although what is written makes derecognised as a result of the disposal.
sense it is not specifically answering the requirement of
Note 3
the question.
Whilst the calculation of the gain/loss of zero is incorrect,
Note 2 a mark has been awarded as the comment, based on the
One mark is awarded for this simple description. This is the numbers calculated, is reasonable. This is what markers
only mark awarded, out of a potential three, for explaining are trained to do, following through the logic of the
how the gain or loss to the group should have been answer, to ensure that the candidate is only penalised
recorded. A missed opportunity. once for the incorrect calculation. It is following a similar
principle to the own figure rule that markers use when
Note 3 following through an incorrectly calculated figure in
Out of the two marks available for the calculations, one a long numerical requirement.
was awarded for the correct calculation of goodwill. As
The mark for candidate two Q1 (a) (ii) is 1/5.
the calculation of the disposal to the group was both
incomplete and contained an error, no further mark
was awarded.
TOTAL:
The mark for candidate one Q1 (a) (ii) is 2/5.

TOTAL:
1/5

2/5

Read the mind of an SBR marker 8

Question 2
The second question selected from the specimen exam Observations on the requirement
is Q2, a 20 mark question which combines a discussion The marking guide allocates 10 marks for discussing the
of a variety of accounting treatments integrated with a accounting issues, with one mark allocated per valid
discussion of their ethical implications. Going forward point. There are five accounting issues raised in the
the discussion of the ethical implications of accounting scenario, related party transactions, segmental reporting,
treatments will have a higher profile in Strategic Business impairment of financial assets, fair value adjustments on
Reporting than in the predecessor equivalent exam, P2 acquisition and impairment reviews of goodwill. A good
Corporate Reporting. The Strategic Business Reporting and balanced approach to the answer would therefore
specimen exam reflects this. be to make two valid points for each accounting issue.
The split of marks is not shown in the question paper,
in which case the best assumption to make is to assume
that the marks would be split roughly equally between
The discussion of the the two aspects of the requirement, in this case ethical
and accounting implications. This approach would have
ethical implications of led to an estimate of 9 marks for the accounting issues,
accounting treatments which again would lead to the same approach of aiming
for two points for each issue.
will have a higher profile
In terms of ethics the marking guide allocates 8 marks for
in Strategic Business valid points and 2 professional marks for the application
Reporting. of ethical principles. However marks are not awarded for
the reiteration of the five pillars in the ethical code i.e. it
is not the case that the 8 marks are for pure knowledge
Required: Discuss the ethical and accounting and 2 are ‘applying’. Application is required throughout.
implications of the above situations from the
perspective of the reporting accountant.
(18 marks)
Professional marks will be awarded in question 2 Application is required
for the application of ethical principles. throughout.
(2 marks)

TOTAL:

20

Read the mind of an SBR marker 9

For the professional marks, the answer is considered Traditionally ethics was examined in P2 Corporate
as a whole in the light of the following: Reporting for only a few marks. Here we see in the
Strategic Business Reporting specimen exam 10 marks
§§ Has the candidate thought a bit more deeply being devoted to ethics in a financial reporting setting.
about the ethical issues; for example, what This illustrates the increased emphasis on applied
needs to be done to resolve the situation? ethics as outlined previously.
§§ They would also get marks for demonstrating
that they can think widely about the issue
considering other resources/implications
where it is sensible to do so.

§§ Ethical issues are never clearcut, therefore

candidates need to show that they understand
the ethical dilemmas that accountants face. It
requires a discussion which demonstrates an
understanding of the reality of a problem.

Candidates need to show

that they understand the
ethical dilemmas that
accountants face.

Read the mind of an SBR marker 10

Notes on candidate one’s answer Q2
Follow this link to see candidate one’s answer to Q2. Note 9
Raising the issue of objectivity demonstrates an ethical
View it here awareness and is awarded one mark. The fact that this
point has been made under the ‘Accounting’ heading
does not prevent the mark being awarded.
The answer has clear headings. The approach of
addressing each accounting issue immediately followed
Note 10
by the ethical implications arising is logical. The use of
Another mark for developing the ethical dilemma into
blank lines really helps the presentation. All this assists
a discussion on integrity and the need for action.
the marker.
Note 11
Note 1
One mark for identifying the correct accounting principle
No mark is awarded for this introduction, comforting
relating to fair values. To gain a further mark here, the
though it is to read. It does nothing beyond describing
candidate would have needed to add more detail on
the requirement.
either the underlying accounting rules, or the effects
on the financial statements.
Note 2
One mark for the clear statement of the principle
Note 12
underpinning related party transaction disclosures.
A considered evaluation of the ethical dilemma that the
accountant faces is awarded a mark. A further mark is
Note 3
awarded for suggesting appropriate courses of action.
One mark for the application, correctly identifying
This part of the answer demonstrates the level of practical
the related parties in the scenario.
application that is demanded in respect of ethical issues.
Note 4
Note 13
No additional mark is awarded for this point, which
No mark awarded for this comment as it is not fully
is really an extension of the first point made.
explained. A further missed opportunity.
Note 5
Note 14
One mark for applying the ethical principle of
Professional marks. One mark out of two available.
professional competence to related party transactions.
There is clearly an attempt to apply the ethical principles
The ethical implications of these related party transactions
to the scenario, and some of the points made show
could have been developed. Another missed opportunity.
an understanding of the dilemma for the accountant
Note 6 and possible courses of action but other points were
One mark only for discussing the accounting issue of superficial, such as those points where the only action
segmental reporting. What is written is correct but a little suggested was to ‘disagree’ or ‘question’.
more detail and application is required to be awarded The mark for candidate one Q2 is 12/20.
the second mark.

Note 7
One mark awarded for identifying the ethical implications. TOTAL:

Note 8
One mark awarded for the identification and 12/20
application of expected credit losses.

Read the mind of an SBR marker 11

Notes on candidate two’s answer Q2 Note 7
Follow this link to see candidate two’s answer to Q2. No mark is awarded as the comment is too simplistic.

Note 8
View it here One mark is awarded for identifying the salary increase
offer as being unethical. Had this been better developed,
The general layout of the answer at first glance seems more marks would have been awarded.
neat and reasonable, However when we remember
that the marks are evenly split between discussing the Note 9
accounting issues and the ethical implications there No mark is awarded. This is just another example of
is clear imbalance between a whole page of writing abstract facts being presented. In this exam, there will
about accounting and just a paragraph about ethics. be no marks given for simply listing out the principles
I prefer the approach taken by candidate one who after of professional ethics.
addressing each accounting issue then considers the
Note 10
ethical implications.
One mark is given here for identifying objectivity as
Note 1 a relevant issue and the principle that the accountant
No mark. This is a regurgitation and looks as if in this scenario must follow.
something learnt from a text book has been written
Note 11
out with no application. The copying out of chunks of
Professional marks. No marks have been awarded here.
definitions, without any context or any attempt to relate
Overall the answer lacked practical application, and
the material to the scenario, is sadly seen all too often.
showed no understanding of the dilemmas the accountant
Note 2 was facing. What little advice or suggested actions that
One mark is awarded as there is an attempt to apply the are given are too simplistic.
technical knowledge to the transaction in the scenario. The mark for candidate two Q2 is 5/20.

Note 3
One mark awarded for the comment on expected losses. TOTAL:

Note 4
The statement that ‘the finance director is wrong and
the accountant should make the adjustment’ is too
5/20
generic and simplistic to merit a mark.

Note 5
One mark is awarded for the discussion on the arbitrary
nature of applying fair values.

Note 6
This rote learnt repetition of definitions is neither a
discussion or applied to the scenario and so does not
get awarded a mark.

Read the mind of an SBR marker 12

 Marks
Specimen exam worked answers
Notes
Question 1 (a) (i) candidate one
Acquisition of House
Principles
Goodwill should be calculated as the difference between the acquisition
date fair value of consideration, plus the non-controlling interest, and 0 Note 1
the fair value of the net assets acquired.

Details of accounting treatment

(Note references are to the calculations below)

The consideration for this acquisition should include all of the following:

-- shares issued (1)

-- the contingent shares, using the acquisition date fair value,
adjusted by a percentage to reflect probability (2) 1
-- non controlling interest (NCI) standards allow two methods Note 2
for measuring NCI. As the policy here is to use fair value,
this has been done using the NCI of 30% of the fair value
1
of House’s share capital (3)

The net assets acquired are valued at $48m (4) giving

a goodwill value of $10.38 million.

Correction required
The contingent shares should be recognised as well as the
non-controlling interest.
0 Note 3

Goodwill calculation: House

Notes Consideration $m
(1) Issue of shares (20m x $2) 40
(2)  Contingent consid
shares (5m x $2 x 20%) 2
(3) NCI (13m x $4.20 x 30%) 16.38

58.38 1 Note 4

(4)  FV of identifiable
net assets (48)
10.38

Correction
Dr Goodwill 10.38 0 Note 5
Cr Share capital 10.38

Relevant notes

Read the mind of an SBR marker 13

 Marks
Notes
Acquisition of Mach
Principles:
Goodwill measurement principles as above for House. 0 Note 6

Details of accounting treatment

(See calculations below)

Consideration should include all consideration, here the land.

At its fair value of $5m. (1) 1
Note 7
Again NCI should be included. A measurement based on
1
earning multiples is acceptable. (2)

Goodwill calculation: Mach

Consid $m
Cash 52
(1) Land 5

57
(2) NCI (20% x $3.6 x 19) 13.38 1 Note 8

70.68
(3) F V of net assets (55)

15.68

Correction
Dr Goodwill 15.68 0 Note 9
Cr Share capital 15.68

TOTAL
Q1 (a) (i):

6/10

Relevant notes

Read the mind of an SBR marker 14

 Marks
Question 1 (a) (i) candidate two
Notes
House
Goodwill $m
Shares (25m x 2) 50
NCI (WI) 14.4
64.4 0 Note 1
FV of NA (48)

16.4

Workings $m
1) NCI
(30% x 48) = 14.4

To correct the error that was made:

Goodwill 16.4
Bargain purchase 8
24.4

Debit goodwill 24.4

Cr NCI 14.4
1 Note 2
Cr Retained earnings 10

Non-controlling interests should be included in goodwill

because of accounting standards. Fair values are used to reflect
the purchase as an arms length transaction. All of the shares 1 Note 3

issued, including the deferred consideration, should be included.

Relevant notes

Read the mind of an SBR marker 15

 Marks
Mach
Notes
Goodwill $m
Cash 52
Transfer of land 5 1 Note 4

57
NCI ?
FV of net assets

All consideration must be included in the goodwill calculation.

And must be included at fair value. The fair value of land would 1 Note 5
be based on IFRS 15 and revaluation credited to a revaluation
surplus in the consolidation statement of financial position.
The correction would be to:
1. Revalue the land Note 6

2. Non-controlling interest.

TOTAL
Q1 (a) (i):

4/10

Relevant notes

Read the mind of an SBR marker 16

 Marks
Question 1 (a) (ii) candidate one
Notes
Niche
The sale of the investment in Niche is a full disposal. Therefore a gain
or loss should be recognised in the SOPLOC of the group.

As the disposal occurred at the end of the year, a full year’s results of
Niche would be included and a full year’s NCI (20%) in those results. This 0 Note 1

would probably be a discontinued activity if separate line of business.

The calculation should be the proceeds received less the group’s ownership
1 Note 2
in the net assets of Niche at disposal date (including goodwill).

Calculation of Gain/Loss $m
Proceeds of disposal 50

Less: cons carry value at

31 Dec 20 x 6 Net assets 60
Goodwill (WI) 2.8

62.8
1 Note 3
Group share (80% x 62.8)

Workings $m

(1) Consideration 40
NCI (20% x 44) 8.8
Identifiable net assets (44)

4.8
Less: impairment (2)

2.8

TOTAL
Q1 (a) (i):

2/5

Relevant notes

Read the mind of an SBR marker 17

 Marks
Question 1 (a) (ii) candidate two
Notes
Niche
Gain in House individual FS $m
Proceed 50
0 Note 1
Cost of inv (40)
Gain 10

Gain in House group FS $m

P roceeds 50
Share of net assets sold
(80% x 60) (48)
0 Note 2
Goodwill impairment (2)
No gain or loss -

Niche is a discontinued activity. It is not in the consolidated

statement of financial position after the sale. As sale was
at the year end, results would be consolidated for full year.
As there is no gain or loss, no group gain/loss to disclose. 1 Note 3

TOTAL
Q1 (a) (ii):

1/5

Relevant notes

Read the mind of an SBR marker 18

 Marks
Question 2 candidate one
Notes
A number of issues involving judgement exist in the scenario relating
to Abby. Each will be discussed in terms of its accounting and ethical 0 Note 1
implications.

Arwight: Related Party Transactions

Accounting Implications
The principle of IAS 24 is that related party transactions must be
disclosed so that users have a full understanding of how the position 1 Note 2
and the performance may have been affected.

In this case the finance director (key management) and his wife
(close family) are related parties of Abby. And so Arwight, the 1 Note 3
company controlled by them is also a related party of Abby.

There is no exemption that permits non-disclosure of ‘arms length’ 0 Note 4

transactions.

Ethical Implications
The accountant must use professional competence and due care.
This includes applying relevant standards so the accountant should 1 Note 5
question the proposed treatment.

Segment Disclosure: Accounting

The standard on segments requires that a range of figures, including
revenue, and profit or loss, are disclosed for segments reviewed by 1 Note 6
the CODM. The disclosure of assets and liabilities only does not meet
the requirement.

Ethical Implications
As above, the accountant must comply with standards and should
1 Note 7
disagree with the finance director’s proposal.

Unpaid invoice: Accounting

The information indicates that the overdue invoice is unlikely to be paid.
1 Note 8
IFRS 9 uses an expected loss basis so an allowance should be made against
this. The strange request from the finance director to say nothing raises
the question of whether the finance director is being objective or is
1 Note 9
showing bias in relation to Arwight, the company he controls with his wife.

Relevant notes

Read the mind of an SBR marker 19

 Marks
Ethical Implications
If the accountant believes that the finance director is being dishonest Notes
in the F.S. of Abby, to assist Arwight, where he has control, professional
ethics requires that the accountant should protect his own reputation and
1 Note 10
integrity by bringing this to the attention of other directors in Abby.

Fair value adjustments:

Again the finance director’s proposal goes against standards. On
acquisition, a sub’s net assets should be measured at fair value. 1 Note 11
External valuations should be used.

Ethical Implications
It seems that the finance director is trying to intimidate the accountant
(the reference to ‘current position’) into doing as he wants. The right 1
ethical response is to maintain integrity and resist the pressure. The
accountant may want to take advice from ACCA but is likely to be 1 Note 12
advised to ‘blow the whistle’ or to resign.

Impairments:
Again the suggestion of salary raise – trying to pressure accountant,
but accountant again must maintain integrity and not agree to.
0 Note 13

Note 14
PS1 Professional
Skills

TOTAL
Q2:

12/20

Relevant notes

Read the mind of an SBR marker 20

 Marks
Question 2 candidate two
Notes
Related parties
Transactions between related parties are a normal feature of
business. IAS 24 requires disclosure of RPTs because they may
distort the position of a company.
A person is related to an entity if they:
-- have control or joint control
-- significant influence
-- key management.

An entity is related to an entity if: 0 Note 1

-- members of the same group

-- associate
-- joint venture
-- controlled by a person who is related
-- provides management services.

The transaction should have been disclosed with amounts, and

1 Note 2
balances and whether or not a price was charged.

Overdue invoice
IFRS 9 Financial Instruments requires an allowance to be made for 1 Note 3

expected losses. The finance director is wrong and the accountant

should make the adjustment. 0 Note 4

Fair value
Fair value adjustments must always be made on acquisition of
a subsidiary. The calculation of goodwill may be arbitrary
1 Note 5
but it is an asset and so must be measured including
non-controlling interest.
IFRS 13 gives a hierarchy of valuations for fair value
-- Level 1 = quoted prices
-- Level 2 = observable inputs for similar assets 0 Note 6
-- Level 3 = reasonable information.

The finance director is wrong and the fair value adjustment

0 Note 7
of $50 should be made.

Relevant notes

Read the mind of an SBR marker 21

 Marks
I mpairment
Goodwill must be tested for impairment annually. The director is Notes
telling the accountant to be flexible and putting pressure on the
accountant through salary increase offer is unethical. 1 Note 8

Ethical issues
The accountant must follow these principles:
-- Integrity
-- Objectivity
-- Professional competence and due care 0 Note 9

-- Confidentiality
-- Professional behaviour.

The accountant must maintain objectivity and do what is right

despite offer of salary increase. 1 Note 10

Note 11
PS0 Professional
Skills

TOTAL
Q2:

5/20

Relevant notes

Read the mind of an SBR marker 22

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