Financial Reporting · November 2025

a) IAS 8-Accounting policies, changes in accounting estimates and errors require that, where there is a change in accounting policy, the change should be applied retrospectively. Retrospective application is applying the new policy to transactions, events, or conditions as if it had always been applied. The main limitations of retrospective application of accounting policy are its impracticability. When it is difficult to apply retrospective application having made necessary effort to do so. This can occur for number of reasons among which are stated below:

i) Period-specific effect: It is impracticable to determine the period specific effect of applying retrospective application to all periods. ii) Cummulative effect: It is impracticable to determine the cumulative effect of applying retrospective application at the beginning of the current period to all prior periods iii) Data unavailability: A company may lack the original historical data required for the restatement because records were not kept in a way that would allow for the adjustment. iv) Unreasonable assumptions: It may be impossible to apply the new policy without making significant and potentially unreliable, assumptions about management's intent or about the objective information that existed in the prior period. v) Excessive cost or effort: The cost of collecting the necessary information can be prohibitively high or the effort required to recreate the data may be unreasonable. 15 1b(i) Ayoka Foods Plc Statement of comprehensive income for the year ended March 31, 2024 N’000 N’000 Revenue 509,470 Cost of sales (w1) (325,420) Gross profit 184,050 Distribution cost (41,250) Administrative expenses (46,050-1,950+900 allowance) (45,000) Finance costs (4,271) Profit before tax 93,529 Income tax expense (w2) (28,500) Profit for the year 65,029 Other comprehensive income:

- Gain on valuation of property (w3) 22,500 - Deferred tax on revaluation (w3) (5,625) 16,875 Total comprehensive income 81,904 b(ii) Ayoka Foods Plc Statement of changes in equity for the year ended March 31, 2024 Share capital Equity option Revaluation reserve Retained earnings Total equity N’000 N’000 N’000 N’000 N’000 Balance at April 1, 2023: (w4a) 84,000 nil nil 10,500 94,500 8% loan note issued (note 5) 2,286 2,286 Dividend paid (w4b) (8,400) (8,400) Comprehensive Income ______ _____ 16,875 65,029 81,904 Balance at March 31, 2024 84,000 2,286 16,875 67,129 170,290 16 b(iii) Ayoka Food Plc Statement of financial position as at March 31, 2024 Non-current asset Property plant and equipment Notes N'000 N'000 Freehold property w6 116,250 Plant and equipment w6 60,000 176,250 Current asset Closing inventories w7 58,950 Trade receivables w8 84,750 143,700 Total assets 319,950 Equity and liabilities Equity Ordinary share capital 84,000 Other components of equity w3 2,286 86,286 Reserves: Retained earnings 67,129 Revaluation reserve 16,875 84,004 Total equity 170,290 Non-current liabilities 8% convertible loan w5 43,385 Deferred tax w2 10,125 53,510 Current liabilities: Trade payable 36,750 Liabilities to Anike Ltd (Factoring company) 13,050 Bank overdraft 17,250 Income tax w2 29,100 96,150 Total equity and liabilities 319,950 17

Workings w1. Cost of sales N'000 Amount per trial balance 311,620 Depreciation on building 3,750 Depreciation on plant and equipment 15,000 Adjustment to inventory N(4050- 9000) (4,950) Total 325,420 w2. N'000 Income tax expense a Income tax 29,100 Over provision (1,200) Increase in movement in def. tax N(6,225-5625) 600 Total income tax 28,500 b Deferred tax N'000 Opening def tax April 1, 2023 3,900 Closing def tax March 31, 2024 (25% x N40,500) 10,125 Increase in movement in deferred tax 6,225 Deferred tax arising on revaluation recognised in OCI(25% x 22,500 revaluation surplus) (5,625) Increase in deferred tax recognised in profit or loss 600 w3. Gain on revaluation – Freehold Property N'000 Revalued amount April 1, 2023 120,000 Carrying amount April 1, 2023 97,500 Revelation surplus 22,500 Less deferred tax arising on revaluation (5,625) Net revaluation surplus 16,875 w4a The retained earnings of N2.1million in the trial balance is after deducting the dividend paid of N8.4million. Therefore, the retained earnings at April 1, 2023 were N10.5million (N2.1million + N8.4million). 18 w4b The dividend paid in November 2023 was N8.4 million. This is based on 168 million shares in issue (84 million x 2): the shares are 50k each times 5k (i.e 168million x 5k). w5a 8% Convertible loan note N’000 Separate into debt and equity components Initial principal value 45,000 Less debt component Year Cashflow DF@10% PV_ 2024 3,600 0.91 3,276 2025 3,600 0.83 2,988 2026 3,600 0.75 2,700 2026 45,000 0.75 33,750 Debt component 42,714 Equity component 2,286 w5b Valuation of debt component at March 31, 2024 N'000 Debt component 42,714 Add an effective interest rate at 10% 4,271 Less Coupon rate at 8% (3,600) Closing balance of debt March 31, 2024 43,385 w6 Property, plant and equipment schedule Freehold property Plant and equipment Total N'000 N'000 N'000 Cost/revaluation April 1, 2023 112,500 111,750 224,250 Revaluation surplus 22,500 ________ 22,500 Cost/revaluation April 1, 2023 135,000 111,750 246,750 Accumulated depreciation Balance April 1, 2023 15,000 36,750 51,750 Deprecation for the year 3,750 15,000 18,750 Accm. Dep. March 3, 2024 18,750 51,750 70,500 Carrying amount April 1, 2023 97,500 75,000 172,500 Carrying amount March 31, 2024 116,250 60,000 176,250 19 N’000 w7 Inventory Balance as per trial balance 54,000 Less: good received after year-end (4,050) Add: Cost of goods sold after year end, but part of inventory on March 31, N(11,700 x 100/130) 9,000 Closing Inventory 58,950 w8 Trade receivables Amount per trial balance 70,650 Add factored receivables 15,000 Less allowance (900) 84,750

Note: Factored receivables: Ayoka Foods Plc still bears the risk of the non-payment of the receivables, hence the substance of this transaction is a loan. Thus the receivables must remain on Ayoka Foods Plc statement of financial position and the proceeds of the ’sale’ treated as a current liability. The difference between the factored receivables (N15,000) and the loan received (N13,050) of N1.95million which has been charged to administrative expenses, should be reversed except for N900,000 which should be treated as an allowance for uncollectible receivables.

Examiner’s report The question tests candidates’ knowledge of the principle and provisions of IAS 8- Accounting policies, changes in accounting estimates and errors. Candidates are also required to prepare the final accounts of a limited liability company which makes it possible to test the application of various provisions of relevant accounting standards such as IFRS 7, IAS 16, IAS 12 etc. Most of the candidates attempted the question and performance was poor. The common pitfall of candidates were as follows:

a. In ability to correctly calculate and properly present the dividend paid in the statement of changes in equity;

b. Failure to carry out backward reconciliation of inventory in other to determine the actual inventory balance as at the reporting date; 20

c. Wrong treatment of factoring of the receivables, which should have been accounted as short term loan in view of the fact that it was ’factoring with recourse ’it was however wrongly treated as ’factoring without recourse; and

d. Inability of candidate to correctly calculate revaluation reserve and other component of equity. Candidates are advised to pay special attention to the preparation of final accounts of a single entity in accordance with relevant International Financial Reporting Standards (IFRS) accounting standards, as this is an area that the examiner might pay attention to at this level of the Institute’s examination.

Marking guide Marks Marks a) Discussion of limitations of retrospective application of accounting policy by an entity stating two limitations at 1 mark each 2 discussion of two limitations at 1½ mark each 3 5 b)i Preparation of statement of profit or loss and other comprehensive income stating the title of the financial statement ½ determination of cost of sales 3 determination of profit before tax 3 determination of taxation and profit for the year 3 determination of gain on valuation of property 2 stating total comprehensive income ½ 12 Ii Preparation of statement of changes in equity stating the title of the financial statement ¼ stating the opening balance of components of equity ¾ determining the equity component of 8% loan note issued 1½ stating dividend paid in the year ½ stating transfers to revaluation reserve and retained earnings ¾ stating closing balance of components of equity 1¼ 5 21 iii Preparation of statement of financial position stating the title of the financial statement ¼ determination of the non-current assets 3 determination of the current assets 1¼ stating the total assets ¼ stating the equity and reserves 1¼ stating the non-current liabilities ¾ stating the current liabilities 1 stating total equity and liabilities ¼ 8 Total 30

(a) Features for computing EPS under IAS 33 The following features must be considered when determining earnings per share in accordance with IAS 33:

(i) Profit attributable to ordinary shareholders: The numerator of EPS must be profit after tax less any preference dividends; (ii) Weighted average number of ordinary shares (WANOS): Shares must be time-apportioned based on when they were in issue during the period; (iii) Effect of bonus and rights issues: Bonus issues and share splits require retrospective adjustment of all prior-period EPS; (iv) Potential ordinary shares for diluted EPS: Options, convertibles and warrants must be assessed to determine whether they are dilutive; (v) Contingently issuable shares: Shares that may be issued if certain conditions are met must be included when they become virtually certain; and (vi) In calculating EPS, an entity should not include non-recurring items in the denominator (b)

i. Effect of scrip dividend on market price of share The effect of the scrip dividend on the market price of EDO Plc’s share will be: Current market price per share is N5.00 Total market value of the shares is 3,000,000 x N5.00 = N15,000,000 25% scrip dividend =25% of N15,000,000 = N3,750,000 new shares at N2.00 per share = N3,750,000 ÷ 2 = 1,875,000 shares 22 With scrip dividends the total number of shares becomes 3,000,000 + 1,875,000 = 4,875,000 shares Since the total market value is N15,000,000, The market price per share will be: N15,000,000 ÷ 4,875,000 shares = N3.08 per share ii. Effect of scrip dividend on EPS Market price per share is expected to reduce to N3.08 per share EPS prior to scrip dividend is N15,000,000/3,000,000 shares = N5.00 per share EPS after scrip dividend will be N11,250,000/4,875,000 shares = N2.31 per share That is EPS has fallen from N5.00 to N2.31 (c) Categorisation of properties 1, 2 and 3 in accordance with IAS 16 and IAS 40 IAS 40 defines investment property as property (building, land or both) that is acquired and held by entity for the purpose of income generation or capital appreciation or both. On the other hand IAS 16 defines property, plant and equipment as asset acquired and held for use in production or supply of good or service, for rental or administrative purpose, and are held during more than one accounting period. Categorisation: Property 1

• This is rented out by Dideolu to one of its subsidiary. According to IAS 40, it would be categorised as IAS 16-Property plant and equipment under consolidated financial statement, since it is sold to a related company.

• If shown as PPE, deprecation of 6,000 (300,000/50years) is recognised in profit or loss for the year ended December 31, 2024 Carrying amount of property is shown at 288,000 (300,000-12,000) Property 2

• This was let to unrelated parties on commercial terms to earn rentals. It should be categorised as investment property under IAS 40

• Fair value loss of 45,000 (315,000-360,000) is recognised in profit or loss at December 31, 2024

• Fair value of investment property at N315,000 is recognised in statement of financial position as at December 31, 2024 23 Property 3

• This was let to unrelated parties on commercial terms to earn rentals. It should be categorised as investment property under IAS 40

• Fair value gain of N7,000 (N270,000 - N263,000) is recognised in profit or loss for the year ended December 31, 2024.

• Fair value of investment property of N270,000 is recognised in statement of financial position as at December 31, 2024

(d) Treatment of income tax (i) An amount of N6million (N37.5million - N 31.5million) was over provided for in the previous year 2023. (ii) Thus, the provision for the current year 2024 should be reduced by that amount of over provision. Hence, an expected liability of N36.8miilion would require a provision of N30.8million (iii) The liability would still be N36.8million, as this is the amount expected to be paid. (iv) Basically, the provision moves from the existing figure of N6million credit to the required level of N36.8million (v) As explained in the calculation below: N’m N’m Taxation b/f – year 2023 37.5 Add: Tax provision for the year 2024 36.8 Less: Over provision for tax 2023 (6)_ 30.8 Tax paid during year 2024 (31.5) Tax liability as at year 2024 36.8_

(e) Translation of monetary and non-monetary items Under IAS 21, foreign currency items at the reporting date are treated differently depending on whether they are monetary or non-monetary.

i. Monetary items

• These are items receivable or payable in fixed units of currency (e.g., cash, receivables, payables, foreign loans) 24

• Monetary items are translated at the closing exchange rate at year-end. Exchange differences arising are recognised in profit or loss, except those relating to a net investment in a foreign operation which are taken to OCI.

ii. Non-monetary items measured at historical cost

• Examples include inventory and PPE under the cost model.

• These items are translated using the exchange rate at the date of the transaction (historical rate). No further re-translation is made at year-end because their values are not affected by future cash flows, but re-translation will be made when there is change in the fair value.

iii. Non-monetary items measured at fair value

• Examples include revalued PPE, investment property FV model, and FV financial assets.

• They are translated using the rate at the date the fair value was determined. The resulting exchange differences follow the same treatment as the fair value changes (i.e. to P&L or OCI) depending on the underlying standard. Conclusion:

• IAS 21 ensures that monetary items reflect current exchange rates at reporting date,

• While non-monetary items are translated according to their measurement basis, ensuring consistency and faithful representation.

Examiner’s report The question tests the application of the provisions of various accounting standards such as IAS 33- Earnings per Share, IAS 12 – Income Taxation, IAS 40- Investment Properties, IAS 16 – Property Plant and Equipment and IAS 21- The Effect of Changes in Foreign Exchange Rates Most of the candidate did not attempt the question and the few that attempted it performed below average. Majority of the candidates that attempted the questions could not correctly apply the accounting standards, most especially IAS 33 in part 2(bi), IAS 12 and IAS 21. Candidates are advised to pay more attention to this section of the syllabus for better performance in future examinations of the institute. 25

Marking guide Marks Marks a) Identification of five features for computing EPS under IAS-33 - any five correct features at ½ mark each 2½

b) Effect of scrip dividend payment decision

i) on the market price of the company’s share:

- calculation of the amount of dividend ½ - calculation of new shares arising from dividend ½ - determination of total shares in issue ½ - calculation of market price per share after dividend 1 ii) on the earnings per share:

- calculation of EPS before dividend payment decision 1 - calculation of EPS after dividend payment decision 1 - determination of decrease in EPS ½ 5

c) Categorisation of properties 1, 2 and 3 in accordance to IAS 16 and IAS 40 - any five points on categorisation with reasons and examples at 1 mark each 5

d) Explanation of treatment of income tax

- any five correct points at ¼ mark each 1¼ - any five correct calculations presented at ¼ each 1¼ 2½

e) Discussions on the translation of foreign currency monetary and non-monetary items in financial statements - any five correct points at 1 mark each 5 Total 20 26

a) Chike Oils Ltd Computation of relevant ratios 2023 2022 i) Gross profit percentage Gross profit x 100 Revenue 1 b. Comments on relevant qualitative factors that may impact on the company's performance Qualitative factors that are likely to affect the company performance are discussed below:

(i) Diversification strategy risk The company acquired 60% of Ducal Agro Ltd. Agriculture is weather-dependent and volatile, thus short-term performance may decline due to initial integration costs.

(ii) Regulatory and economic environment Oil and gas companies face forex volatility, insecurity, pipeline vandalism and subsidy restructuring, all of which may depress margins.

(iii) Rising operating costs Administrative and distribution costs rose significantly (Administrative: ₦270m to ₦467m). This suggests cost inefficiency or inflationary pressures affecting profitability.

(iv) Financing structure and solvency risk New 12% loan notes increased gearing from 13.9% to 32.38%, exposing the company to higher financial risk and interest burden. 1,093 x 100 3,645 1 982 x 100 2,457 1 =29.99% =39.97% ii) NPBIT percentage Net profit before interest and tax x 100 Revenue 1 261+54 x 100 3,645 1 527+9 x 100 2,457 1 =8.64% =21.82% iii) Gearing ratio Fixed interest-bearing capital x 100 510 x 100 Fixed interest-bearing capital + equity 1 510+1,095 1 120__ x 100 120+743 1 =32.38% =13.90% 27

(v) Investment with no immediate return No dividend or value uplift from Ducal Agro Ltd indicates that the investment is not yet contributing to profit, affecting return on investment.

(vi) Working capital pressure Trade receivables doubled (N105m to N225m), possibly indicating weaker credit control.

(vii) Management team and leadership The effectiveness, experience and decision-making abilities of the management team are crucial. Strong leadership can navigate challenges and inspire employees, while poor management can lead to inefficiency and financial losses.

(viii) Employee engagement and morale Engaged and satisfied employees are more productive, innovative and less likely to leave the company. A positive workplace culture and good talent retention can lead to better overall performance.

(ix) Company culture and values A strong positive company culture influences employee behavior, job satisfaction and the company's ability to attract and retain top talent.

(x) Competitive advantage or business model Unique strengths that set a company apart (e.g., superior technology, innovative products, efficient operations) can lead to increased market share and higher profit margins.

(xi) Product or service quality How well a product or service satisfies customer needs and wants directly impacts customer satisfaction and loyalty, which are key drivers of revenue growth.

(xii) Industry trends and market growth: The overall dynamics of the industry, including whether it is a high-growth or slow-growth market, will impact the company's potential for success.

(xiii) Economic conditions General economic conditions, such as inflation rates, interest rates and overall market stability, can affect consumer spending, financing costs and business performance regardless of internal management. 28

(xiv) Regulatory and legal environment Changes in government regulations, legal issues (such as pending litigation), or compliance costs can have a major financial impact.

(xv) Supplier and partner relationships: Strong relationships with key vendors and partners can ensure a stable supply chain and better navigation of problems or disagreements when they arise.

(xvi) Social responsibility and Environmental, Social and Governance (ESG) factors A company's commitment to ethical practices, community engagement and environmental stewardship can influence investor perception and customer trust, thereby impacting financial outcomes. (c) Chike Oils Ltd. Statement of cash flows for the year ended December 31, 2023 (operating activities only) N’million N’million Operating activities: Profit before tax 261 Adjustment for non-cash and non-operating items: Finance cost 54 Movement in working capital: Increase in inventory N(180-150) (30) Increase in trade receivables N(225-105) (120) Decrease in other receivables N(165-0) 165 Increase in trade payables N(285-210) 75 90 Cash flow from operating activities 405 Interest paid (54) Tax paid (wk1) (162) Net cash flows from operating activities 189 29

Workings: Determination of tax paid N’million Balance b/fwd 156 Income tax expenses (P or L) 81 Less balance c/d (75) Tax paid 162

Examiner’s report The question tests candidates’ knowledge of ratio analysis and interpretation of financial statements as well as preparation of the statement of cash flow extract. Most candidates attempted the question and performance was above average. The main pitfall noted was that some candidates commented on the quantitative factors that affect the company’s performance rather than discussing the qualitative factors. Candidates are advised to read the question properly and ensure that they provide only relevant answers. Also, candidates should make use of the Institute’s Pathfinders and relevant financial journals to aid their ability to interpret relevant financial statements.

Marking guide Marks Marks a) Computation of relevant ratios for the two years 2023 and 2022 - correct calculation of gross profit percentage 3 - correct calculation of net profit margin 3 - correct calculation of gearing ratio 3 9

b) Comment on relevant qualitative factors that may impact on the company’s performance - any six points at 1 mark each 6

c) Preparation of statement of cash flows for the year

- stating the title ½ - stating the profit before tax ½ - adjusting for interest paid (finance cost) ½ - determining movement in working capital 2 - calculating tax paid 1 - determining cash flow from operating activity ½ 5 Total 20 30

Dimeji Ltd Consolidated statement of profit or loss for the year ended September 30, 2024 N’000 Revenue N(165,000+(99,000 x 6/12)-(6,000+13,500) intra group sales 195,000 Cost of sales (w1) (163,950) Gross profit 31,050 Distribution costs N(4,500+(3,000x 6/12) 6,000 Administrative expenses N(7,875+(3,600x 6/12) – 5,100 negative goodwill (w2) (4,575) Loss on equity investment (300) Decrease in contingent consideration N(2,700 – 2,250) 450 Finance costs 375 Profit before tax 20,250 Income tax expense N(5,250 – (1,500 x 6/12) 4,500 Profit for the year 15,750 Profit attributable to: Equity holders of the parent 16,875 Non-controlling interests (1,125) 15,750 Dimeji ltd Consolidated statement of financial position as at September 30, 2024 N’000 Assets Non-current assets Property, plant and equipment (w3) 95,850 Financial asset: equity investments N(24,000 – 20,250 cash consideration) – 300 loss 3,450 99,300 Current asset N(24,750 + 7,200 -900 URP) 31,050 Total assets 130,350 Equity and liabilities: Equity attributable to owners of the parent: Equity shares of N0.50 each 45,000 Retained earnings (w4) 44,625 31 89,625 Non-controlling interest (w5) 4,275 Total equity 93,900 Current liabilities: Contingent consideration 2,250 Other current liabilities N(22,500 +11,700) 34,200 Total equity and liabilities 130,350

Workings: w1 Cost of sales N’000 Dimeji Ltd 132,000 Dekunle Ltd N(100,800 x 6/12) 50,400 Intra-group purchases N(6,000 + 13,500) 19,500 Unrealised profit in inventory (see below) 900 Additional depreciation on leased property N(3,000 ÷ 10 years x 6/12) 150 163,950 The profit on the sale of the goods back to Dimeji Ltd is N5.4million N(13,500 – (6,000 + 2,100). Therefore, the unrealised profit in the inventory of N2.25million at September 30, 2024 is N900,000 N(5,400 x 2,250 ÷ 13,500) w2 Goodwill in Dekunle Ltd N’000 N’000 Investment at cost: immediate cash consideration (9,000 x 2 (shares of N0.50) x 75% x 1.50) 20,250 Contingent consideration 2,700 Non-controlling interest N(18,000 x 25% x N1.20) 5,400 28,350 Net assets (equity of Dekunle at September 30, 2024 27,000 Add back post-acquisition losses N(6,900 x 6/12) 3,450 Fair value adjustment for property 3,000 32 Net asset at date of acquisition (33,450) Bargain purchase/negative goodwill: credited to profit or loss 5,100 Dekunle’s adjusted post-acquisition losses for the year ended September 30, 2024 are N4.5million (N6,900 x 6/12 + 150 additional depreciation + 900 URP) Therefore, the non-controlling interest share of the losses is N1,125,000 (4.5million x 25%)

Note: IFRS 3 on business combinations’ says gain on bargain purchase (negative goodwill) should be credited to the acquirer, thus none of it relates to the non-controlling interests Also IFRS 3 states that gain on bargain purchase should be recognised in the statements of profit or loss but not as a line item, which will eventually flow into retained earnings reserve. w3. Property, plant and equipment: N’000 Dimeji Ltd 61,500 Dekunle Ltd 31,500 Fair value adjustment 3,000 Additional depreciation (150) 95,850 w4. Retained earnings: N’000 Dimeji Ltd 42,750 Dekunle’s post-acquisition adjusted losses (4,500 x 75%) 3,375 Gain on bargain purchase 5,100 Loss on equity investment (300) Decrease in contingent consideration 450 44,625 33 w5. Non- controlling interests: N’000 At date of acquisition 5,400 Post-acquisition loss from statement of profit or loss (1,125) 4,275

Examiner’s report The question is on group accounts and it tests candidates’ ability to prepare consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position. Majority of the candidates attempted the question but performance was below average The common pitfalls were as follows:

a. inability of candidates to properly account for the contingent considerations in the process of the acquisition of the subsidiary;

b. Most of candidates could not properly account for the gain on bargain purchase (Negative goodwill) in accordance with the provisions of IFRS 3 – Business combination;

c. Some candidates allocated part of the gain on bargain purchase (negative goodwill) to non- controlling interest which is against the provisions of IFRS 3, which specify that negative goodwill should only be credited to the acquirer; and

d. Other candidates could not correctly calculate the consolidated retained earnings and non-controlling interest. Candidates are advised to pay attention to this section of the syllabus, practice past questions and answers on group accounts, and make use of the Institute of Chartered Accountants of Nigeria’s study texts for better performance at this level of the Institute’s examinations. 34

Marking guide Marks Marks a) Preparation of consolidated statement of profit or loss for the year - stating the title ¼ - determination of consolidated revenue 1 - calculation of consolidated cost of sales 3 - stating consolidated distribution costs ½ - calculating administrative expenses 1 - determining gain on bargain purchase 1¾ - stating decrease in contingent consideration ½ - calculation of profit before tax ½ - adjusting for income tax expense ½ - stating profit for the year attributable to parent and non- controlling interests 1 10

b) Preparation of consolidated statement of financial position as at year end - stating the title ¼ - calculation of consolidated property, plant and equipment 2¼ - stating the financial asset 1 - determining current assets 1 - stating total assets ¼ - stating the equity share capital ¼ - calculation of consolidated retained earnings 2 - calculation of non-controlling interest 1¼ - stating total equity ¼ - stating current liabilities and contingent consideration 1¼ - stating total equity and liabilities ¼ 10 Total 20 35

a) Rule-based and Principle-based system

(i) A rule-based accounting system is likely to be very descriptive. (ii) It is generally considered to be a system which relies on a series of detailed rules of accounting requirements that prescribe how financial statements should be prepared. (iii) It is considered less flexible, but often more comparable and consistent than a principle-based system. (iv) It could also be argued that rule-based system can lead to identifying loopholes. (v) By contrast, a principle-based system relies on generally accepted accounting principles that are conceptually based and are normally supported or shored-up by a set of key objectives. (vi) Principle-based system are more flexible than rule-based systems. however, they require judgement and interpretation, which could lead to inconsistences between two or more reporting entities and sometimes to the manipulation of financial statements. (vii) IFRS are based on Conceptual Framework for Financial Reporting. They are therefore often regarded as being a principle-based system. Though, IFRS(s) do contain many rules and requirements that are often lengthy and complex, their critical feature is that IFRS rules are based on underlying concepts. Conclusion In reality, most accounting systems have an element of both rules and principles. Their designation as rule-based or principle-based depends on the relative importance and robustness of the principles compared to the volume and manner in which the rules are derived.

(b) Advantages of adopting IFRS by Immanuel Limited

(i) Facilitate international acquisitions and mergers IFRS is instrumental in making international acquisition and mergers easier.

(ii) Global understanding: IFRS provides a common language for reporting financial results across borders. This makes it easier for firms operating in different jurisdiction to apply the same accounting standards so that potential buyers or merger partners can easily understand and assess the financial condition of the target company. 36

(iii) Comparable financial statements: With IFRS, comparative financial statements of companies from other countries can be compared easily. This comparability will enable investors and acquirers to assess with accuracy, the performance and the financial position of a company located anywhere in the world.

(iv) Transparency and disclosure: IFRS promotes transparency and extensive disclosure of financial information. Companies are required to provide information to the investors, regarding their overall financial performance, risks involved and key metrics about their companies. This reduces the uncertainty and risk for investors before planning acquisitions or mergers.

(v) Alignment with global standards: Most of the multinational companies are already following IFRS as the reporting framework. If an organisation acquires or merges with such a company, it will reduce integration issues and the complexity involved in getting the different accounting practices of the various entities to align with one another.

(vi) Regulatory compliance: Complying with IFRS becomes compulsory for numerous companies for listings or their entry to cross-border access capital. A company, henceforth, through IFRS, stays within the regulatory compliance, which in the future may aid in crossing border deals and acquisitions. In a nutshell, IFRS fosters transparency, comparability and reliability in financial reporting. That is why IFRS becomes a key facilitator for international acquisitions and mergers.

(vii) Reduce the time, effort and cost of creating many reports Amongst many significant benefits of the IFRS, of the main reasons is the creation of a worldwide standardised accountancy language. For this, a company can state their performance, regardless of the company being from a particular nation using the same language. 37

(viii) Offer greater flexibility in accounting practices IFRS facilitates better decision-making since it ensures investors and analysts receive standardised and comparable financial information. A standard framework allows investment decisions to be made regardless of the location of the company concerned. Information asymmetry is also reduced, which will result in much more accurate assessments of a company’s financial performance and risk profiles. Better decision-making promotes better resource allocation, increases the confidence of investors, and generally leads to better overall functioning of capital markets.

(ix) Make it easy for companies to establish a business in other countries Companies that apply IFRS are able to gain a competitive advantage by accessing international capital markets. Most stock exchanges worldwide require listed companies to prepare their financial statements under IFRS. Applying this requirement allows companies to attract a wider base of global investors and even achieve a higher valuation. Access to international markets also allows companies to raise funds more easily, expand investor bases and increase the visibility of the company on the international stage.

(x) More information transparency and improved communication IFRS ensures that transparent and consistent financial reporting is presented to stakeholders in such a manner that the company enjoys high credibility among investors, lenders and other stakeholders

(xi) Comparison of company ratings Investor confidence is anchored on transparent financial reporting. IFRS’s emphasis on clear and accurate financial disclosures enhances investor trust in the accuracy of reported financial information. This increased confidence can lead to positive effects on share prices and market capitalisation. Investor confidence drives higher market participation, lowers the cost of equity and has a positive impact on a company’s overall valuation.

(xii) Prudent management in IFRS IFRS requires companies to assess and disclose various types of risks in their financial statements, which include financial, operational and market risks. Through this, management can determine and assess the risks and implement appropriate mitigating strategies while making prudent decisions to safeguard the assets and interests of the organisation. 38

Examiner’s report The question tests rule-based and principle-based system of accounting standards as well as the advantages of adopting International Financial Reporting Standards. Most candidates attempted the question and their performance was average. Majority of the candidates were able to clearly state the advantages of adopting IFRS while some could not differentiate between rule-based and principle-based system of accounting standards Accounting standards are the bedrock of financial reporting, hence candidates are advised to familiarise themselves with the basic principles and provisions of accounting standards.

Marking guide Marks Marks a) Differentiate between rule-based and principle-based accounting system - stating any five differences 5

b) Advantages of adopting IFRS for financial reporting

- stating any five advantages of IFRS 2½ - Discussion of the five advantages of IFRS 7½ 10 Total 15

a) Key features of sustainability reporting

(i) Forward-looking: Includes scenario analysis, forecasts and strategy alignment. (ii) Materiality-driven: Focuses on ESG (Environmental, Social and Governance) issues that could affect enterprise value. (iii) Quantitative and qualitative factors: Combines KPIs– Key Performance Indicators (e.g., emissions, water use) with narratives (e.g., governance practices). (iv) Integrated with financial information: Increasingly aligned with financial reporting standards (e.g., IFRS S1 and S2). (v) Standardised by global framework (GRI and IFRS) (vi) Value chain oriented that is, it looks beyond the companies’ immediate operations. 39

b) The objectives and benefits of sustainability reporting The primary objective of sustainability reporting is to provide transparency and accountability on an organisation's impacts on the economy, environment and society, to assist internal and external stakeholders' decision-making.

(i) Transparency and accountability: Publicly disclosing performance related to environmental, social, and governance (ESG) issues demonstrates a commitment to responsible practices and builds trust with stakeholders and the public.

(ii) Informed decision-making: Providing clear, consistent and reliable data enables investors to assess long-term risks and opportunities, also allows customers and communities to align their values and make informed choices.

(iii) Regulatory compliance: Meeting mandatory national and international legal requirements helps avoid penalties and ensures the company operates within legal boundaries.

(iv) Enhancing reputation and brand image: Highlighting sustainability efforts can improve brand reputation and attract employees and customers who prefer sustainable and ethical brands.

(v) Attracting capital: Growing investor interest in ESG factors means transparent reporting is crucial for attracting investment and accessing financial markets.

(vi) Identifying risks and opportunities: The process helps businesses identify potential ESG risks (e.g., climate change, supply chain issues) and opportunities (e.g., cost savings from waste reduction, new markets for sustainable products) that may impact long-term performance.

(vii) Strategic decision-making: Sustainability data provides management with insights to make more effective strategic decisions, align business models with sustainable practices, and set clear, forward-looking goals and targets.

(viii) Performance measurement and improvement: Reporting allows an organisation to measure and monitor its performance against key metrics and industry peers, identifying areas for improvement and driving efficiency. 40

(ix) Improving employee morale and retention: Engaging employees in sustainability initiatives can boost morale and help retain talent, particularly among younger generations who prioritise working for responsible organisations. Ultimately, sustainability reporting serves as a catalyst for positive change, promoting responsible business practices and contributing to the global goal of sustainable development, which balances economic growth, social inclusion, and environmental protection.

(c) Importance of ISSB to Global Sustainability Reporting

(i) Provides a single authoritative source of sustainability disclosure standards for capital markets. (ii) Reduces the reporting burden on multinational companies by aligning standards. (iii) Promotes trust, accountability and efficiency in ESG data used by investors, lenders and regulators. (iv) Enables effective integration of sustainability performance into financial decision- making. (v) The emergence of the ISSB marks a transformative milestone in the evolution of corporate reporting. (vi) It addresses long-standing challenges of fragmentation and lack of comparability in sustainability disclosures. (vii) Through IFRS S1 and S2, the ISSB aims at elevating the sustainability reporting to the same rigour, relevance and consistency as traditional financial reporting, ushering in a new era of integrated, global and investor-focused corporate transparency.

Examiner’s report The question is on sustainability reporting and it tests candidates’ knowledge of the features and benefits of sustainability reporting as well as importance of International Sustainability Standards Board (ISSB) to global reporting. Few candidates attempted the question and their performance was below average. Most of the candidates could not correctly states the features of sustainability reporting as well as the importance of the activities of ISSB to global reporting Although this question relates to a new section of the financial reporting syllabus, candidates are, therefore, advised to make use of the study text of Financial Reporting in other to acquire the necessary skills on sustainability reporting for better performance in future examinations. 41

Marking guide Marks a) Discussion of any five key features of sustainability reporting 5 b) Stating any six objectives and benefits of sustainability reporting 6 c) Identifying and explaining four important activities of International Sustainability Standards Board (ISSB) to global sustainability reporting 4 Total 15

(a) ICAN’s Professional code expresses its guidance in terms of five fundamental principles. These are: Integrity Members should be straightforward and honest in all professional and business relationships. Integrity implies not just honesty but also fair dealing and truthfulness. A chartered accountant should not be associated with reports, returns, communications or other information where they believe that the information:

• Contains a materially false or misleading statement;

• Contains statements or information furnished recklessly; or

• Omits or obscures information required to be included where such omission or obscurity would be misleading. Objectivity Members should not allow bias, conflicts of interest or undue influence of others to override their professional or business judgements. A chartered accountant may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations. Relationships that bias or unduly influence the professional judgment of the chartered accountant should be avoided. Professional competence and due care Practicing as a chartered accountant involves a commitment to learning over one’s entire working life. Members have a duty to maintain their professional knowledge and skill at such a level that a client or employer receives a competent service, based on current developments in practice, legislation and techniques. Members should act diligently and in accordance with applicable technical and professional standards. 42 Continuing professional development develops and maintains the capabilities that enable a chartered accountant to perform competently within the professional environments. Confidentiality Members must respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose such information to third parties without authority or unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties. Professional behaviour Members must comply with relevant laws and regulations and should avoid any action which discredits the profession. They should behave with courtesy and consideration towards all with whom they come into contact in a professional capacity

(ii) Threats to the fundamental principles The following five threats are identified by the International Federation of Accountants (IFAC). Self-interest threat or conflict of interest: These occur when the financial and other interests of the professional accountant, or a close family member, in appropriately affect the accountant’s decisions or actions. Self-review threat: This is the threat that a professional may not review appropriately some work done previously by him or by another individual within the same firm. A typical example is a situation where a professional accountant prepares the annual financial statements for a client and then is appointed to do the audit. Advocacy threat: This type of threat can occur when an accountant promotes the point of view of a client, for example by acting as a professional witness in a legal dispute. This may impair the objectivity of the accountant. Familiarity threat: This is the threat that results from long or close relationship with the client such that an accountant might become too sympathetic to client and more willing to accept the client’s point of view. Intimidation threat: A professional accountant might find that his objectivity and independence is threatened either real or perceived pressure. 43

(b) Benefits of Artificial Intelligence (AI) and robotics

(i) Increased efficiency and productivity: AI simplifies repetitive accounting tasks, freeing up time for professionals to focus on more strategic and value-added activities. This shift enhances productivity and efficiency, allowing accountants to concentrate on areas where their expertise is most impactful.

(ii) Improved customers experience: Using chat GPT to draft email, can save time. AI can be used for customers’ support.

(iii) Enhanced data analysis and predictions: AI algorithms are capable of rapidly analysing financial data, making them powerful tools for identifying patterns and predicting trends. By examining transactions, cash flows and budgets, AI helps individuals and businesses manage their financial data more efficiently and make informed decisions.

(iv) Costs savings: AI-driven process automation enables accounting firms to save time and reduce costs by handling routine tasks efficiently. This allows professionals to focus on strategic initiatives, boosting productivity and profitability while minimising operational expenses.

(v) Creation of new job opportunities: One of the most significant ways that AI is creating job opportunities is through the development and deployment of AI systems, cloud-based system or AI -powered tools.

(vi) Robotic Process Automation (RPA) software: This has been demonstrated to be effective in handling routine and monotonous aspects of the accountant’s job

(vii) Automating repetitive and mundane tasks: AI enables accountants track changes in business financial information from various sources.

Examiner’s report The part (a) of the question tests candidates’ knowledge of professional ethics while part (b) is on information technology (Artificial Intelligence and Robotics) Majority of the candidates attempted the questions and their performance was above average. Some of the candidate could not correctly identify and discuss the threats to the fundamental principles of professional code of conduct. Candidates are advised to pay more attention to all sections of the syllabus for better performance in future examinations of the Institute. 44

Marking guide Marks Marks a) Identifying and explaining four fundamental principle of ICAN professional code of conduct 8 Explaining four categories of threats to the fundamental principles 4 12

b) Discussing three merits of Artificial Intelligence (AI) and Robotics in business operations and professional duties 3 Total 15 45 INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA