Classification as held for sale is a non-adjusting event after the reporting period (IAS 10 para 22(c)). Therefore the definition of a discontinued operation is not met as the assets are neither discontinued in the period nor classified as held for sale at the year end.

A reportable operating segment closed down during the year is likely to meet the definition of a discontinued operation because it represents a major part of the entity’s business and it was disposed of during the entity’s accounting period.

For an operation not yet sold or abandoned to meet the definition of a discontinued operation, it must meet the IFRS 5 held for sale criteria. All of these criteria were met at the previous year end, however at the current year end the operation was not sold within 12 months of classification and the period is expected to be extended well past this. However, where the period is extended by an event beyond the entity’s control such as this IFRS 5 Appendix B permits classification as held for sale (and therefore treatment as a discontinued operation) to continue provided the other criteria are still met, which appears to be the case here.

• EPS gives a way to measure a company’s profits relative to the number of shares in issue. It is argued that as owners hold equity shares, it is more relevant to them to know how much profit each share has earned than to know the overall profit figure.
• EPS feeds into the price / earnings ratio, one of the most important stock market measures of value. This gives an estimate of the number of years it would take for an investment in an equity share to return itself in earnings terms, assuming current performance continues into the future.
• It is essential that such an important measure of performance have clear guidelines regarding its calculation. IAS 33 Earnings per Share gives us a standardised method of calculating both earnings, and the number of shares.
• Many investors feel that other measures are more appropriate, and that the IAS 33 definition of EPS is too conservative. IAS 33 allows alternative measures of EPS to be published, as long as the IAS 33 figure gets equal or greater prominence.
• There is a danger in relying on a single measure of performance, as no single measure can encapsulate all aspects of an entity’s performance.
• Also, there is a danger that EPS may be seen by unsophisticated investors as a definite exact number, when in reality it is subject to all the accounting estimates and judgments that are necessary in preparing a set of financial statements.
• Despite these fears, it is generally agreed that IAS 33 gives a very fair method of calculating EPS, and that the consistency it offers is of value to the investor and analyst.                                          (Any 3 points)
  

The net actuarial gain in OCI is GH¢218,000 for the year.

Statement of Changes in Equity for the year ended 31 December 2017 (extract)

Commentary/Justification:
After the disposal of 60% of equity, Afoko Ltd has significant influence over Anyidohu Ltd. Therefore there is an associate relationship and Afoko Ltd should apply equity accounting for Anyidohu. Under equity accounting an investment is held at cost plus group share of retained total comprehensive income made after associate status is established, less any impairment losses. In a case such as this, where a disposal of equity shares has resulted in control being lost but significant influence being retained, deemed cost is the fair value of the retained investment on the disposal date. Therefore the investment in Anyidohu as an associate is initially measured at fair value of GH¢65m.

The group share of total comprehensive income subsequently earned by Anyidohu is recognised in the group statement of profit or loss and other comprehensive income and increases the carrying amount of the investment.

A family relationship between an auditor and the client can substantially affect the objectivity of the audit, so auditors are advised not to build close personal relationships with audit clients and should not audit a company where family are employed in a capacity which is sensitive to the accounts, for example finance department, although this is not prohibited by law.

In this stance, the partner was not the reporting partner for the audit client in which the wife was the Finance Director. According to generally accepted ethical practice then, the firm appeared to be independent of the audit client, if the related partner did not have anything to do with the audit.

Code of Ethics

• Every professional accountant has a moral obligation to comply with the ethical code of conduct of the accountancy profession. Professional ethics is an inherent part of the profession.
• Professional accountants are required to adhere to a set of fundamental principles in the course of their professional duty. These principles are confidentiality, objectivity, professional behaviour, integrity and professional competence and due care. The main aim of professional ethics is to serve as a moral guideline for professional accountants.         (2 marks)

Compliance

• Compliance with this set of ethical guidelines implies that the accountant is able to decide on the most appropriate course of action, which will be in line with the professional body’s stance on ethics.
• The presence of a code of ethics is a form of declaration by the professional body to the public that it is committed to ensuring the highest level of professionalism amongst its members.                            (2 marks)

Non-Compliance

• Non-compliance with these principles give room to a lack of confidence in the financial reporting process.
• Non-compliance can also imply that the actions of professional accountants can be judged to be deceptive, unethical and unfair. It violates the trust relationship of the stewardship function.                             (2 marks)
  

The Conceptual Framework as a mechanism to resolve practical accounting issues

• The danger of not having a conceptual framework is demonstrated in the way some countries’ standards tend to be produced in a haphazard way. Where an agreed framework is in place, the IASB can act as the architect – building accounting rules on the foundation of sound, agreed basic principles.
• The lack of a Conceptual Framework means that fundamental principles are tackled more than once in different standards, thus producing inconsistencies (e.g. prudence and matching). This leads to ambiguity and it affects the true and fair concept of financial reporting.
• There is also the problem that standards become ever sophisticated rules rather than principles governing financial reporting. A well thought out Conceptual Framework can also help standard setters in resisting political interference (lobbying etc).
• Although Conceptual Framework can’t solve all the problems, it provides a set of coherent principles which can be used when devising alternatives and can also provide guidance in the absence of accounting standard. (Any 3 points for 3 marks)

However, the Conceptual Framework is unlikely to provide all the answers:

• Financial statements are intended for a variety of users and it is not possible for a single framework to satisfy all users. For example, social and environmental accounting issues.
• Given the diversity of user requirements, there may be a need for a variety of accounting standards, each produced for a different purpose.
• There is an argument that the conceptual framework makes to task for preparing financial statements more difficult.
• In creating the framework – who is deciding what accounting represents (i.e. is it the accountants who are creating reality?).
• Focus is on suppliers of capital and decision-making. What about the stewardship function of accounting?
• Private sector focus – what about the not-for-profit sector?                                                (Any 3 points for 3 marks)
  

• Financial accounting focuses on information needs of suppliers of capital and those making resource allocation decisions. (IASB – under the conceptual framework documents have decided who the key users are?).
• Problem of measurability – reasonable accuracy is not possible for many social and environmental impacts and so they are not recognised.
• Accountability is narrowly defined and corporate organisations are seen as being accountable to shareholders.
• Focus on single economic bottom line (i.e. financials)
• Ignores social and environmental externalities (e.g. BP deep water horizon spillage)
• Materiality used to make decisions as to whether to include items in financial statements
• Discounting of future liabilities for inclusion in financial statements or impairment testing does not make sense in the context of providing for environmental and social impacts.
• Entity assumption – of transaction does not impact the entity it is ignored for accounting purposes
• Recognition of assets depends on “control” hence environmental resources such as sir and water cannot be considered assets.

• Reporting on what is known as the Triple Bottom Line (i.e. economic, social and environmental). Problem with this is measuring social impacts – would any organisation seriously report that they are “unsustainable” in terms of their impacts on society and environment.
• Many of the top companies are now producing separate Sustainability Reports in addition to their annual financial statements. Should such reporting be mandatory?
• Global Reporting Initiative (GRI) guidelines – set out the key indicators organisations should report on. The Global Reporting Initiative is an international, multi-stakeholder effort to create a common framework for voluntary reporting of the economic, environmental, and social impact of organization-level activity. Its mission is to improve the comparability and credibility of sustainability reporting worldwide.

Workings:
GH¢8 million was paid in dividends in y/e 30 April 2017 – calculated by balancing the retained earnings reserve.
Bal @ 30 April 2016 (per question)                              65,000
Loss for the year (per question)                                     (21,000)
Less Dividend *                                                             (8,000)
Balance @ 30 April 2017 (per question)                    36,000

This was 6.15p per share (130m shares in issue). This was 50% less that previous year (per note (iii)).
Therefore dividend for year ended 30 April 2015 was 12.31p per share.
As there were 120m shares in issue that year, the total dividend paid must have been GH¢14.769m, or GH¢14.8m.

                                                                                                    (4 marks spread evenly using ticks)

Financial Performance

• Financial performance is a quantitative measure of how well a firm can use assets from its primary mode of business and generate revenues using the financial statements. This can be measured using Gross Profit Margin, Net Profit Margin, Return on Capital Employed and Return on Equity.
• The performance of the entity has definitely deteriorated from 2016 to 2017.The gross margin, net margin and both ROCE and ROE have declined markedly.
• It is particularly concerning to see underlying gross margins dropping as well as sales volume. This trend has the potential to destroy the business if not arrested immediately.
• Efforts should be made to increase sales, reduce overheads and sell off of unprofitable Or unnecessary assets in order to improve on the financial performance of the entity.                                                              (Any 3 points for 3 marks)

Financial Position

• The status of the assets, liabilities, and owners’ equity (and their interrelationships) of an organization, as reflected in its financial statements is the financial position. The financial position helps users to understand the gearing, liquidity and value of the company. This can be measured using Debt to Equity ratio for gearing, and Current Ratio and Acid test ratio for liquidity and Interest cover.
• The business does not appear to have a serious liquidity issue. Although the liquidity ratios could be better, they have improved over the course of the period reviewed.
• The business was able to raise new equity even in tough times. This shows the business has shareholders who believe in it and are willing to support it.
• The interest cover has declined precipitously. The ability of Ahomka Ltd to service its debt obligations is a key factor in determining its solvency and is an important statistic for shareholders and prospective investors. Efforts should be made to reverse this worst situation as Creditors are concerned with the company’s ability to make their interest payments as well. If they are struggling to make the interest payments on their current debt obligations, it doesn’t make any sense for a prospective credit to extend them additional credit.
• The low gearing gives some comfort as the business can survive tough times easier than if gearing were higher.
• The bank loan is a big uncertainty. The fact that none appears in current liabilities suggests that it is not due immediately. However if this were repayable soon it could cause liquidity issues.                        (Any 3 points for 3 marks)
  

Market Price per share  = P/E ratio x EPS
Market Price per share  = 8 x GH¢325,000
.                                     = GH¢2,600,000 x 0.90
.                                     = GH¢2,340,000