ICAP CA Corporate Reporting Syllabus

Under IFRS 9, what are the three classification categories for financial assets?

(1) Amortised cost, (2) Fair value through other comprehensive income (FVOCI), and (3) Fair value through profit or loss (FVTPL).

What two tests determine whether a financial asset is measured at amortised cost under IFRS 9?

(1) The business model test — held to collect contractual cash flows; and (2) the SPPI test — contractual cash flows are solely payments of principal and interest on the principal outstanding.

Under IFRS 9, when is a debt instrument measured at FVOCI?

When the business model is to both collect contractual cash flows and sell the asset, AND the cash flows are solely payments of principal and interest (SPPI test passed).

Under IFRS 9, what irrevocable election is available for equity investments not held for trading?

An entity may elect at initial recognition to present fair value changes in OCI (FVOCI). Gains/losses in OCI are never recycled to profit or loss; only dividends go to P&L.

What impairment model does IFRS 9 use for financial assets, and what are its stages?

The expected credit loss (ECL) model. Stage 1: 12-month ECL (no significant increase in credit risk); Stages 2 and 3: lifetime ECL (significant increase in credit risk, or credit-impaired).

Under IAS 32, what is the key principle for classifying an instrument as a financial liability versus equity?

Substance over legal form: an instrument is a liability if there is a contractual obligation to deliver cash or another financial asset; it is equity only if there is no such obligation and it evidences a residual interest in the entity's net assets.

Under IAS 32, how are redeemable preference shares with a mandatory fixed dividend classified?

As a financial liability, because the entity has a contractual obligation to deliver cash (the redemption amount and/or dividends). The 'dividends' are presented as a finance cost.

Under IAS 32, when may a financial asset and financial liability be offset (presented net)?

Only when the entity (1) currently has a legally enforceable right to set off the amounts, and (2) intends either to settle net or to realise the asset and settle the liability simultaneously.

How is a compound financial instrument (e.g. convertible bond) accounted for under IAS 32?

Split accounting: the liability component is measured first at the fair value of a similar instrument without the conversion option; the residual (proceeds less liability) is recognised as equity.

What is the main purpose of IFRS 7 disclosures?

To require disclosures enabling users to evaluate the significance of financial instruments for the entity's financial position/performance, and the nature and extent of risks arising and how they are managed.

IFRS 7 requires disclosure of which three main categories of risk arising from financial instruments?

Credit risk, liquidity risk, and market risk (the latter including currency risk, interest rate risk, and other price risk).

Under IAS 19, what is the key distinction between a defined contribution plan and a defined benefit plan?

In a defined contribution plan the employer's obligation is limited to agreed contributions (actuarial/investment risk falls on the employee). In a defined benefit plan the employer bears the obligation to provide agreed benefits, and thus the actuarial and investment risk.

Under IAS 19, what are the components of the net defined benefit cost recognised, and where?

(1) Service cost (current/past service cost, settlements) — in P&L; (2) Net interest on the net defined benefit liability/asset — in P&L; (3) Remeasurements (actuarial gains/losses, return on plan assets excluding interest) — in OCI, not recycled.

How is the net defined benefit liability/asset measured under IAS 19?

Present value of the defined benefit obligation (using the projected unit credit method) less the fair value of plan assets (subject to the asset ceiling).

Under IAS 19, how are short-term compensated absences (e.g. paid leave) accrued?

The expected cost of accumulating paid absences is recognised as the employees render service that increases their entitlement; non-accumulating absences are recognised when they occur.

Under IFRS 2, what is the measurement basis for an equity-settled share-based payment with employees?

Measured at the fair value of the equity instruments granted at the grant date; this is not subsequently remeasured. It is recognised over the vesting period as an expense with a corresponding increase in equity.

Under IFRS 2, how are vesting conditions treated when measuring an equity-settled share-based payment?

Market conditions and non-vesting conditions are reflected in the grant-date fair value (not trued up). Service and non-market performance conditions are not in fair value but are reflected by adjusting the number of instruments expected to vest.

How is a cash-settled share-based payment (e.g. share appreciation rights) measured under IFRS 2?

At the fair value of the liability, remeasured at each reporting date and at settlement, with changes recognised in profit or loss. A liability (not equity) is recognised.

Under IAS 21, how does an entity determine its functional currency?

The currency of the primary economic environment in which it operates — principally the currency that influences sales prices and labour/material costs of providing goods and services.

Under IAS 21, how are monetary and non-monetary items translated at the reporting date?

Monetary items: at the closing rate. Non-monetary items at historical cost: at the rate on the transaction date. Non-monetary items at fair value: at the rate when fair value was measured.

Under IAS 21, how is a foreign operation translated for consolidation, and where do exchange differences go?

Assets and liabilities at the closing rate; income and expenses at transaction-date (or average) rates. Resulting exchange differences are recognised in OCI (a translation reserve) and reclassified to P&L on disposal.

Under IFRS 5, what conditions must be met to classify a non-current asset as 'held for sale'?

The asset must be available for immediate sale in its present condition and the sale must be highly probable (management committed to a plan, active marketing at a reasonable price, sale expected within 12 months).

How is a non-current asset (or disposal group) classified as held for sale measured under IFRS 5?

At the lower of its carrying amount and fair value less costs to sell. It is no longer depreciated/amortised while classified as held for sale.

Under IFRS 5, what is a discontinued operation?

A component of an entity that has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area, or a subsidiary acquired exclusively with a view to resale.

How is a discontinued operation presented in the statement of profit or loss under IFRS 5?

As a single amount comprising the post-tax profit/loss of the discontinued operation plus the post-tax gain/loss on remeasurement to fair value less costs to sell or on disposal, presented separately from continuing operations.

Under IFRS 8, on what basis are operating segments identified?

The 'management approach' — segments are identified based on the internal reports regularly reviewed by the chief operating decision maker (CODM) to allocate resources and assess performance.

What are the quantitative thresholds in IFRS 8 for a segment to be separately reportable?

A segment is reportable if its revenue, reported profit/loss (absolute), or assets is 10% or more of the respective combined total. Reportable segments must collectively make up at least 75% of external revenue.

State the basic earnings per share (EPS) formula under IAS 33.

Basic EPS = (Profit or loss attributable to ordinary equity holders of the parent) ÷ (Weighted average number of ordinary shares outstanding during the period).

Under IAS 33, how is a bonus (scrip) issue treated in the weighted average number of shares for EPS?

Treated as if it occurred at the start of the earliest period presented (no cash received, no resources change), and prior period EPS is restated to allow comparability.

How is diluted EPS calculated under IAS 33 for convertible bonds?

Adjust the numerator by adding back the post-tax interest saved on conversion and adjust the denominator by adding the number of shares that would be issued on conversion; only include if the effect is dilutive.

In ratio analysis, state the formulas for return on capital employed (ROCE) and the current ratio, and what each assesses.

ROCE = Operating profit (PBIT) ÷ Capital employed (equity + long-term debt), assessing profitability/efficiency of capital use. Current ratio = Current assets ÷ Current liabilities, assessing short-term liquidity. Gearing = Debt ÷ Equity (or Debt ÷ (Debt+Equity)) assesses financial risk, and the ICAP Code's fundamental ethical principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

State two key limitations of financial statements that ratio analysis cannot overcome.

Examples: they are largely historical (backward-looking) and may not reflect current values; they omit non-financial/intangible factors (e.g. staff quality, brand); accounting policy choices and estimates reduce comparability; figures can be affected by inflation, window-dressing, and seasonality.