An introduction to ACCA F7 Financial Reporting
F7 is ACCA’s intermediate level financial accounting paper. It develops on the knowledge learnt in F3 Financial Accounting and is developed on in P2 Corporate Reporting. Consequently not only is the syllabus important to get to grips with in terms of passing the F7 exam, but it is essential knowledge in then being able to pass P2 too.
The F7 exam contains 5 questions, all of which must be attempted. As with all of the papers, students have 15 minutes reading time prior to the 3 hours of writing time to complete the exam (although the word complete is perhaps misleading, but more of that later!).
Question 1 – Group accounts – 25 marks
Question 1 requires the preparation of a consolidated statement of financial position and / or a consolidated statement of comprehensive income for a group. The group structure can consist of a parent entity, a subsidiary and possibly an associate. The common consolidation adjustments that are tested are fair value adjustments together with the impact on depreciation, intercompany and provisions for unrealised profits.
Often this question contains a written element for approximately 5 marks where students may be asked to explain the need for the consolidation adjustments or may need to demonstrate their understanding of how group financial statements differ from the single entity financial statements of a group company.
Students typically prepare well for this question (although they tend to do less well on any written element) and feel relatively comfortable with it. However it is quite time pressured and many students will be unable to complete the question in the 45 minutes that it is advised to spend on this question.
Tip – make sure that you adopt a logical, step by step approach to answering the question to help you deal with the volume and time pressure. Make sure that you attempt any written part of the question (possibly even doing it first) so that you don’t let these marks slip through your fingers.
Question 2 – Published financial statements – 25 marks
Question 2 requires the preparation of financial statements from a trial balance and information about period end adjustments. Questions require the statement of financial position and statement of comprehensive income to be produced and sometimes also require a statement of changes in equity. There will be typically 5 or 6 bullet points relating to period end adjustments to account for. Common adjustments are:
- Depreciation charges for the year
- Revaluation of PPE
- Income tax liability
- Deferred tax
The F7 syllabus contains many accounting standards and any of these can be tested in this question. Topis may range from leases, construction contracts, revenue recognition and financial instruments. It is therefore vital that students have as broad knowledge as possible to be able to do well on this question. To top it off, this question is perhaps the most time pressured in the exam and so good exam technique is also vital to achieving a solid pass in the time available.
Tip – again a logical, step by step approach is helpful to deal with the time pressure. Make sure that you show all your workings so that even if you don’t get the correct final answer, you can pick up method marks. Clear cross-referencing between your answer and workings is also essential.
Question 3 – Interpretation and / or statement of cash flows – 25 marks
Question 3 tests two areas of the syllabus – the preparation of a statement of cash flows for a single entity and interpretation of financial statements. Some questions only test interpretation however most of the recent exams have tested both the SCFs and interpretation.
If the question is “pure” interpretation students can expect to be required to calculate various ratios and then to analyse their findings in conjunction with the information in the question. The scenario may require students to consider two different entities against each other or perhaps this year and last year for the same entity.
Questions that require the preparation of a SCFs will provide the opening and closing SFP for the entity together with its SCI and any additional information required. Students may then be asked to comment on the SCFs for the interpretation part of the question or may be required to comment on certain ratio’s based on the scenario.
Most students prefer this question to contain a SCFs as this is something that they can learn, practice and be well-prepared on. However, this can make the question time pressured.
Tip – make sure that you do the writing part of this question. Too many students rely on the calculations and think that this will be enough to get them through – it won’t. It can actually be easier to pick up marks on the written elements because there is no single correct answer.
Question 4 – Accounting theory / application of an accounting standard – 15 marks
Question 5 – Accounting theory / application of an accounting standard – 10 marks
Both question 4 and 5 focus in on a particular syllabus area. Typically the question will ask for some “theory” in part a) such as stating the requirements of an accounting standard. Application is then tested in part b) where you may be asked to explain the accounting treatment required or may be required to prepare extracts from the financial statements.
Questions 4 and 5 are always the weakest answers in student’s scripts. Any topic can be tested here and so the questions are far less predictable than questions 1,2 and 3. However, the conceptual framework is a commonly tested topic within these questions. So it is worth investing some time learning the qualitative characteristics, the definitions of the elements of financial statements and the recognition criteria.
Tip – make sure that you know a little about all of the accounting standards on the syllabus so that regardless of what is tested, you can attempt the question.
Overall the biggest tip that I can pass on with F7 is to practice as many past exam papers as you possibly can. Not just the more predictable questions 1, 2 and 3 but 4 and 5 too! The more you practice, the better you will be able to cope with the time pressure. Also, practising as many past questions as possible will ensure you have practiced a broad range from the syllabus. On the day, attempt everything and if necessary, complete nothing.