It is no secret that your SBR exam will contain at least one requirement on group scenarios, one on ethical issues, and one on stakeholder perspectives. There will also be several requirements examining various IFRS® Accounting Standards. To score a pass, however, you need more than an understanding of which topics will be examined. You also need to understand how they will be examined, how you should approach different styles of question and what your answer should look like.

Two common requirements in the SBR exam, both of which are covered in this article, are those which require you to explain an accounting treatment with related calculations, and those which simply require you to explain or discuss an accounting or reporting issue. Each of these styles is considered in this article, using examples from recent exams.

Questions requiring explanations with calculations

Questions requiring explanations with calculations may relate to almost any area of the syllabus, and to group or single entity scenarios.

Question 1 of the March/June 2023 past exam included the following requirement worth nine marks:

‘Using exhibit 3, explain, with calculations, how the Greer Group would account for the investment in Gae Co in the consolidated financial statements for the year ended 31 December 20X7’.

The related exhibit was as follows:

When faced with a question requiring ‘explain, with calculations…’ , many candidates focus on ‘calculations’ and produce numerical answers with little to no explanation. The examiner’s report accompanying the March/June 2023 past exam identifies that the ‘discursive element of the answers was often limited to an explanation of what constitutes an associate’. Focusing on calculations is a high-risk strategy; even if they are flawless, SBR mark schemes for this type of requirement limit the number of marks available for calculations, and you may not be able to secure a pass on the question. In this case, the requirement was out of nine marks and the number of available marks in the marking scheme was 12; however, just four of these were for calculations. It was therefore impossible to achieve 50% on this requirement without providing some explanation.

Approach to the question
It should now be clear that to maximise your chance of success in this type of question, you must answer both aspects of the requirement – calculation and explanation. In the time-pressured environment of an SBR exam, this can be difficult to do, and time can run away when we become involved in calculations. You should develop an approach to this type of question before you come to sit your SBR exam. Your approach might be to:

1. Perform calculations and then explain the accounting treatment
2. Complete both parts of the requirement at the same time, or
3. Explain the accounting treatment and then perform relevant calculations.

The disadvantage of the first approach has already been highlighted; however, this approach can work if you allocate time to the calculations and then move on to your explanation when that time is up. Producing calculations first can help prompt the explanations. For example, in this question the calculation of the carrying amount of the investment in the associate at the reporting date is as follows:

The calculation can then be used as a prompt to help you to generate relevant explanations, as follows:

• The first line prompts the explanation that an associate is initially measured at cost.
• The second line prompts the explanation that the initial financial asset is remeasured to fair value when the additional shareholding is acquired, with the resulting gain recognised in other comprehensive income (due to the financial asset’s classification as fair value through other comprehensive income (FVTOCI)).
• The third line leads to the explanation that the group’s share of the associate’s post-acquisition profit is recognised in the investing category of the consolidated statement of profit or loss, and is also added to the carrying amount of the investment in the associate.

Alternatively, the calculation and related explanations can be produced at the same time, if preferred. This might involve setting up headings for both calculations and explanations in the constructed response area and writing an explanation each time you add a line to the calculation. Effectively, this involves providing a running commentary on what you are calculating, as you calculate it.

The third suggested approach involves producing an explanation of the accounting treatment before you do the calculations. The benefit of this approach is that the content of your explanation is not constrained by the calculations, and you are more likely to identify and explain additional points. For example, in the question above, the calculation of the carrying amount of the associate does not drive discussion of the initial FVTOCI financial asset holding; however, three marks were available for this, as well as one further mark for explaining that the acquisition of the additional shareholding means that the investment is an associate to which equity accounting applies.

Generating content for the explanation part of your response
In ‘explain’ questions, candidates tend to conclude too quickly as to the recommended accounting treatment, rather than explaining how they got to that conclusion, therefore missing marks which are available for more obvious points. A common example of this relates to the topic of provisions. Candidates tend to jump straight to a conclusion that a provision should be recognised, therefore missing easy marks available for outlining the recognition criteria in IAS 37 Provisions, Contingent Liabilities and Contingent Assets and explaining how they apply to the scenario. To overcome this problem, it is worth remembering that most IFRS Accounting Standards include sections on some or all of the following: definitions, classification, recognition, measurement and presentation. Using these trigger words may help you to capture more marks.

Another approach which may help you to develop the content of your explanation is to think about accounting treatment chronologically over a period. In the March/June 2023 question above, the scenario describes an initial acquisition of shares on 1 January 20X7, a receipt of a dividend on 31 March 20X7 and a further acquisition of shares on 1 July 20X7. The requirement then relates to the financial statements at 31 December 20X7.

Ask yourself, what accounting treatment should be applied at each of these dates? What is recognised in profit or loss or other comprehensive income at each date? This approach will help you to pick up the easy mark which is available for stating that the dividend received in March 20X7 is recognised in profit or loss in the year. The examiner’s report for March/June 2023 identifies that very few candidates scored this mark in the exam.

One final, and important, point relating to your explanation response is that marks will not be available for explaining something which has already been explicitly identified in a scenario, or which is not relevant. For example, the scenario above specifically states that Greer Co achieved significant influence over Gae Co on 1 July 20X7. Therefore, no marks were available for explaining the presumption of significant influence due to the 22% shareholding being achieved on 1 July, nor for identifying other indicators of significant influence.

In summary, when attempting requirements which ask you to ‘explain with calculations’:

• Produce both calculations AND explanations;
• Practise an approach which works best for you – explanation first, calculations first or both at the same time;
• Don’t jump to the conclusion – remember the easy, more obvious marks; and
• Don’t explain something which you are already told in the scenario (unless you are asked to do so).

Questions requiring explanation or discussion only

Questions requiring explanation or discussion of accounting or reporting treatment, but without any calculations, may relate to any area of the syllabus, and to group or single entity scenarios.

‘Explain’ requires you to make something clear, in simple terms, whilst ‘discuss’ requires you to consider two sides to something, for example an argument and counterargument, advantages and disadvantages or correct and incorrect accounting treatments which have been applied in a scenario. This article focusses on a general approach to questions which require a narrative answer, be it explain or discuss.

Question 3 of the March/June 2024 past exam included the following requirement worth nine marks:

‘Using exhibit 1:

• Explain why the cash-generating units should have been tested for impairment; and
• Discuss whether the methods used to calculate the value in use and discount rate are acceptable.’

The related exhibit was as follows:

Many candidates find questions with no numerical element daunting. Developing an approach to this type of question before the exam date, and then using it to practise questions on a variety of topics, can be the difference between passing and failing.

Approach to the question
It is a good idea to plan your answer to a discursive requirement when it is worth more than just a few marks. This can be done in the constructed response area itself by creating a structure for your answer, with sub-headings. In the March/June 2024 question 3 requirement, there are three obvious sub-headings which could be set up, each driven by the requirements:

• Reason to test for impairment
• Acceptability of calculation of value in use, and
• Acceptability of discount rate.

These sub-headings prompt you to produce an answer to each part of the requirement. Remember, it is only by answering all parts that you can access all available marks. By making sure that the sub-headings closely reflect the actual requirements, you will keep yourself on track when you start writing.

The examiner’s report for March/June 2024 identified this as a particular problem for this question, with candidates spending time ‘explaining how an impairment loss is calculated and allocated amongst a CGU rather than why there should have been an impairment test’. Writing answer content which is not relevant to the question will not score any marks, even if it is based on the principles of IFRS Accounting Standards.

Before starting to write, consider the number of marks which are available and how you might allocate them across these sub-headings. This will help you to decide how much you should write for each sub-topic. In this question there is more to write about the calculation of value in use than there is about reasons for testing for impairment or the discount rate. This is reflected in the mark scheme which awarded a maximum of three marks for testing for impairment, a maximum of seven marks for commenting on the value in use calculations, and a maximum of two marks for commenting on the discount rate.

This illustrates the importance of achieving coverage of all aspects of the requirement within your answer; you might be able to write excessively about indicators of impairment and when to test for impairment, but that is not sufficient to score 50%.

A common approach in terms of exam technique is to do the ‘easiest’ part of the question first. This will, of course, vary by candidate, but remember that by dissecting the requirement and creating a structure for your answer, as described above, you are in a good position to deal with each aspect of the question in the order which you prefer.

Content of your answer
When answering discursive requirements, many candidates write everything which they can remember from the relevant IFRS Accounting Standard. This is a waste of time. Although some marks are awarded for stating the principles from a Standard, these principles must be relevant to the requirement and its related exhibit. What is more important, however, and where the bulk of the marks are awarded, is the application of these requirements to the scenario.

For example, in the March/June 2024 question above, you might start your explanation of why the CGUs have been tested for impairment by stating that IAS 36 Impairment of Assets provides both internal and external indicators of possible impairment. You might then refer to one or two of these indicators as listed in IAS 36, although probably not more, given the available marks. What is more important, however, is identifying that there is an indicator of impairment in the scenario: the increase in customers using online shopping and the resulting fall in revenue earned by retail stores. You might then go on to make the point that IAS 36 requires certain assets to be tested for impairment annually and apply that to the scenario by suggesting that one of the allocated central assets may be goodwill.

Discussion of the acceptability of the value in use calculation and the discount rate were the more difficult parts of this question, and it is no surprise that the examiner’s report identified that candidates’ responses were ‘mixed’. The report did, however, state that a large number of candidates were ‘able to discuss the incorrect use of a 10-year budget…and the incorrect inclusion of $5 million of future expenditure’. In a requirement such as this, which requires more detailed knowledge of an IFRS Accounting Standard, you may not be able to take the approach described above in which you state the requirements of the Standard before applying them. Instead, use the scenario to generate your answer points. Most candidates will be able to pick out at least one or two aspects of a stated accounting treatment which are correct or incorrect. Even if you can’t specify the correct treatment in full, you may be able to access some of the available marks.

In summary, when attempting a discuss or explain question:

• Use the requirement to create a structure in the constructed response area, with sub-headings
• Allocate marks to each sub-heading when planning content
• Ensure that you write something under each sub-heading, and
• State the relevant requirements of IFRS Accounting Standards but focus on how this knowledge is applied to the scenario.

Presenting your response

This article deals with written answers involving explanation and discussion. In addition to the points made above, a discursive answer appears more professional and focused, and is certainly easier to mark, if you:

• write in short sentences, using straightforward language
• explain or discuss each point in a new paragraph
• avoid repetition, and
• reference any workings, particularly if these are in a spreadsheet response area.