ICAP CAF CAF-6: Corporate Reporting Syllabus

State the five-step model for recognising revenue under IFRS 15.

1) Identify the contract with a customer; 2) Identify the performance obligations; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations; 5) Recognise revenue when (or as) a performance obligation is satisfied.

Under IFRS 15, when is revenue recognised over time rather than at a point in time?

Over time if any of: (a) the customer simultaneously receives and consumes the benefits as the entity performs; (b) the entity's performance creates/enhances an asset the customer controls; or (c) the asset has no alternative use to the entity and it has an enforceable right to payment for performance completed to date.

Under IFRS 15, how is a variable consideration constrained?

Variable consideration is estimated (expected value or most likely amount) but included in the transaction price only to the extent that it is highly probable a significant reversal of cumulative revenue will not occur when the uncertainty is resolved.

Under IFRS 15, how is the transaction price allocated to multiple performance obligations?

On the basis of the relative stand-alone selling prices of each distinct performance obligation. If a stand-alone price is not observable, it must be estimated (e.g. adjusted market assessment, expected cost plus margin, or residual approach).

Under IAS 38, what are the recognition criteria for an intangible asset?

It must meet the definition (identifiable, controlled, giving future economic benefits) AND it is probable that expected future economic benefits will flow to the entity, AND the cost can be measured reliably. 'Identifiable' means separable or arising from contractual/legal rights.

Under IAS 38, what is the accounting treatment of research costs versus development costs?

Research costs must be expensed as incurred. Development costs must be capitalised if the entity can demonstrate all 'PIRATE' criteria (technical Feasibility, Intention to complete, ability to Use/sell, probable future benefits, Adequate resources, ability to measure cost Reliably).

Under IAS 38, which internally generated intangibles can never be recognised as assets?

Internally generated goodwill, brands, mastheads, publishing titles, customer lists and similar items in substance cannot be recognised, because their cost cannot be distinguished from the cost of developing the business as a whole.

Name the five fundamental principles of professional ethics in the IESBA/ICAP Code.

Integrity, Objectivity, Professional competence and due care, Confidentiality, and Professional behaviour.

List the five categories of threats to compliance with the fundamental ethical principles.

Self-interest threat, self-review threat, advocacy threat, familiarity threat, and intimidation threat.

What does the fundamental ethical principle of 'confidentiality' require, and when may information be disclosed?

It requires not disclosing confidential information acquired through professional relationships without proper authority, and not using it for personal advantage. Disclosure is permitted when legally required, permitted by law and authorised, or there is a professional duty/right to disclose.

What does ESG stand for and give an example issue under each pillar?

Environmental (e.g. carbon emissions, water use, pollution), Social (e.g. labour practices, human rights, community relations), and Governance (e.g. board structure, executive pay, anti-corruption controls).

What is the difference between 'financial materiality' and 'impact materiality' in sustainability reporting (double materiality)?

Financial materiality concerns how sustainability matters affect the entity's value/financial position (outside-in). Impact materiality concerns the entity's effects on the environment and society (inside-out). Double materiality considers both.

Under IFRS 16, how does a lessee account for a lease at commencement (other than short-term/low-value leases)?

The lessee recognises a right-of-use asset and a corresponding lease liability. The liability is the present value of unpaid lease payments discounted at the interest rate implicit in the lease (or the incremental borrowing rate).

Under IFRS 16, what is included in the initial cost of a right-of-use asset?

The initial lease liability + lease payments made at or before commencement (less incentives received) + initial direct costs + estimated dismantling/restoration costs.

Under IFRS 16, what two recognition exemptions are available to lessees?

Short-term leases (term of 12 months or less with no purchase option) and leases of low-value underlying assets. For these, lease payments may be recognised as an expense on a straight-line basis.

Under IFRS 16, how does a lessor classify leases and how is each accounted for?

A lessor classifies a lease as a finance lease if it transfers substantially all the risks and rewards of ownership; otherwise it is an operating lease. Finance leases derecognise the asset and recognise a net investment (receivable); operating leases keep the asset and recognise rental income on a straight-line basis.

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

Amortised cost; Fair value through OCI (FVOCI); and Fair value through profit or loss (FVTPL). Classification depends on the entity's business model for managing the assets and the contractual cash flow characteristics (the SPPI test - solely payments of principal and interest).

Under IFRS 9, when is a financial asset measured at amortised cost?

When (1) the business model is to hold the asset to collect contractual cash flows, AND (2) those cash flows are solely payments of principal and interest on the principal outstanding (SPPI test is met).

Describe the IFRS 9 three-stage expected credit loss (ECL) impairment model.

Stage 1: no significant increase in credit risk - recognise 12-month ECL. Stage 2: significant increase in credit risk since recognition - recognise lifetime ECL. Stage 3: credit-impaired - recognise lifetime ECL with interest on the net (amortised) carrying amount.

Under IFRS 9, what is the option for equity investments not held for trading?

At initial recognition the entity may make an irrevocable election to present subsequent fair value changes in OCI (FVOCI). Dividends go to P&L, but gains/losses in OCI are never recycled to profit or loss on disposal.

Under IFRS 8, what is the definition of an operating segment?

A component of an entity that (a) engages in business activities earning revenues and incurring expenses, (b) whose operating results are regularly reviewed by the chief operating decision maker (CODM) to allocate resources and assess performance, and (c) for which discrete financial information is available.

State the quantitative thresholds under IFRS 8 for a segment to be separately reportable.

A segment is reportable if it meets any one of the 10% tests: its reported revenue (external + intersegment) is 10% or more of total revenue; OR its profit/loss is 10% or more of the greater (in absolute amount) of combined profit or combined loss; OR its assets are 10% or more of total segment assets.

Under IFRS 8, what is the '75% rule' for reportable segments?

If the total external revenue of identified reportable segments is less than 75% of the entity's total revenue, additional segments must be identified as reportable (even if they fail the 10% tests) until at least 75% of revenue is covered.

Under IAS 37, what three conditions must be met to recognise a provision?

(1) A present obligation (legal or constructive) exists as a result of a past event; (2) it is probable that an outflow of economic benefits will be required to settle it; and (3) a reliable estimate of the amount can be made.

Under IAS 37, how is a provision measured?

At the best estimate of the expenditure required to settle the present obligation at the reporting date. Where there is a range, the expected value (probability-weighted) is used for large populations; for a single obligation the most likely outcome. If material, the provision is discounted to present value.

Under IAS 37, define a contingent liability and state how it is treated.

A contingent liability is a possible obligation depending on uncertain future events, or a present obligation that fails the probability or reliable-measurement test. It is not recognised but is disclosed, unless the outflow is remote.

Under IAS 37, how is a contingent asset treated?

A contingent asset is a possible asset arising from past events confirmed by uncertain future events. It is not recognised; it is disclosed only when an inflow of benefits is probable. When the inflow becomes virtually certain, it is recognised as an asset (no longer contingent).

Under IAS 10, distinguish adjusting and non-adjusting events after the reporting period.

Adjusting events provide evidence of conditions that existed at the reporting date - the financial statements are adjusted. Non-adjusting events are indicative of conditions that arose after the reporting date - the statements are not adjusted, but material ones are disclosed.

Under IAS 10, how are dividends declared after the reporting period treated, and what is the cut-off date for these events?

Dividends declared (proposed) after the reporting date are not recognised as a liability at the reporting date (a non-adjusting event); they are disclosed. The cut-off is the date the financial statements are authorised for issue.

Under IAS 21, define functional currency and presentation currency.

The functional currency is the currency of the primary economic environment in which the entity operates. The presentation currency is the currency in which the financial statements are presented (which may differ from the functional currency).

Under IAS 21, how are monetary and non-monetary foreign-currency items retranslated at the reporting date, and where do exchange differences go?

Monetary items are retranslated at the closing rate, with exchange differences recognised in profit or loss. Non-monetary items measured at historical cost stay at the rate on the transaction date (not retranslated); those at fair value use the rate when fair value was measured.