ICAP CFAP CFAP-1: Advanced Corporate Reporting Syllabus

What is the formula for the current ratio and the quick (acid-test) ratio?

Current ratio = Current assets / Current liabilities. Quick ratio = (Current assets − Inventory) / Current liabilities.

What is the formula for gearing ratio and interest cover?

Gearing = Debt / (Debt + Equity) or Debt / Equity. Interest cover = Profit before interest and tax (PBIT) / Finance costs (interest).

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).

Under IFRS 9, what two tests determine whether a financial asset is measured at amortised cost?

(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.

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

Stage 1: no significant increase in credit risk — 12-month ECL. Stage 2: significant increase in credit risk — lifetime ECL. Stage 3: credit-impaired — lifetime ECL with interest on net carrying amount.

Under IFRS 9, how are gains and losses on an equity investment elected as FVOCI treated?

Fair value changes go to OCI and are NOT reclassified to profit or loss on disposal (no recycling); dividends are recognised in profit or loss.

Under IAS 32, what is the key distinction between a financial liability and an equity instrument?

A financial liability involves a contractual obligation to deliver cash or another financial asset; an equity instrument evidences a residual interest in assets after deducting all liabilities (no obligation to deliver cash).

Under IAS 32, how is a compound financial instrument (e.g., convertible bond) accounted for at initial recognition?

It is split: the liability component is measured first at the fair value of a similar liability without conversion option, and the equity component is the residual (total proceeds minus liability component).

Under IAS 32, when can financial assets and financial liabilities be offset (presented net)?

When the entity has a legally enforceable right to set off and intends either to settle net or to realise the asset and settle the liability simultaneously.

What categories of risk disclosure does IFRS 7 require for financial instruments?

Credit risk, liquidity risk, and market risk (which includes currency risk, interest rate risk, and other price risk), along with qualitative and quantitative disclosures for each.

What is the 5-step model for revenue recognition under IFRS 15?

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

Under IFRS 15, what three criteria indicate that a performance obligation is satisfied over time?

(1) Customer simultaneously receives and consumes benefits as the entity performs, (2) the entity's performance creates/enhances an asset the customer controls, or (3) the asset has no alternative use and the entity has an enforceable right to payment for performance to date.

Under IFRS 15, when is a performance obligation satisfied at a point in time, and what indicates transfer of control?

When none of the over-time criteria are met. Indicators of control transfer: present right to payment, legal title transferred, physical possession transferred, risks and rewards transferred, and customer acceptance.

Under IFRS 15, how is variable consideration measured and what constraint applies?

Measured using the expected value or most likely amount; included only to the extent it is highly probable that a significant reversal of cumulative revenue will not occur when uncertainty is resolved (the constraint).

Under IFRS 16, how does a lessee initially measure the right-of-use asset and lease liability?

Lease liability = present value of unpaid lease payments discounted at the rate implicit in the lease (or incremental borrowing rate). Right-of-use asset = lease liability + initial direct costs + prepayments + dismantling costs − lease incentives received.

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

Short-term leases (12 months or less with no purchase option) and leases of low-value assets — lessees may recognise payments as an expense on a straight-line basis instead of capitalising.

Under IFRS 16, how does a lessor classify and account for finance leases versus operating leases?

Finance lease (transfers substantially all risks and rewards): derecognise asset, recognise net investment (lease receivable). Operating lease: keep asset on books, recognise lease income on a straight-line basis.

Under IFRS 16, how is a sale and leaseback accounted for when the transfer qualifies as a sale under IFRS 15?

The seller-lessee recognises a right-of-use asset measured as the proportion of the previous carrying amount relating to the retained right of use, and recognises a gain/loss only on the rights transferred to the buyer-lessor.

Under IAS 12, what is the formula for a deductible/taxable temporary difference?

Temporary difference = Carrying amount of asset/liability − Tax base. A taxable temporary difference gives a deferred tax liability; a deductible temporary difference gives a deferred tax asset.

Under IAS 12, when is a deferred tax asset recognised?

For deductible temporary differences, unused tax losses and unused tax credits, to the extent that it is probable that future taxable profit will be available against which they can be utilised.

Under IAS 12, at what tax rate are deferred tax balances measured?

At the tax rates expected to apply when the asset is realised or the liability settled, based on rates (and laws) enacted or substantively enacted by the end of the reporting period. Deferred tax is NOT discounted.

Under IAS 36, when must an entity test an asset for impairment, and which assets are tested annually regardless of indicators?

When there is an indicator of impairment. Goodwill, intangible assets with indefinite useful lives, and intangible assets not yet available for use must be tested annually regardless of indicators.

Under IAS 36, how is an asset's recoverable amount determined?

Recoverable amount = the higher of (a) fair value less costs of disposal and (b) value in use (the present value of future cash flows expected from the asset).

Under IAS 36, how is an impairment loss allocated to a cash-generating unit (CGU) containing goodwill?

First to reduce goodwill of the CGU to nil, then to the other assets of the unit pro rata based on carrying amounts — but no asset is reduced below the higher of its fair value less costs of disposal, value in use, or zero.

Under IAS 36, can an impairment loss on goodwill be reversed?

No. Impairment losses recognised for goodwill are never reversed. Impairment losses on other assets may be reversed if the recoverable amount increases.

Under IAS 19, distinguish between a defined contribution plan and a defined benefit plan.

Defined contribution: employer pays fixed contributions and has no obligation beyond them (actuarial/investment risk on employee). Defined benefit: employer guarantees specified benefits, bearing actuarial and investment risk (any other post-employment plan).

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

(1) Service cost and (2) net interest on the net defined benefit liability/asset — both in profit or loss; (3) Remeasurements (actuarial gains/losses, return on plan assets excluding interest) — in OCI, not reclassified.

What does IFRIC 14 address regarding IAS 19?

It addresses the limit (asset ceiling) on a defined benefit asset, the impact of minimum funding requirements, and when refunds or reductions in future contributions are available — restricting the recognition of a surplus as an asset.

Under IFRS 2, how is an equity-settled share-based payment measured, and is it remeasured?

Measured at the fair value of the goods/services received, or if not reliably measurable, at the fair value of the equity instruments granted at grant date. It is NOT remeasured for subsequent changes in fair value.

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

Market conditions and non-vesting conditions are reflected in grant-date fair value (no later true-up). Service and non-market performance (vesting) conditions are reflected by adjusting the number of instruments expected to vest at each reporting date.

Under IFRS 2, how does the measurement of a cash-settled share-based payment differ from an equity-settled one?

Cash-settled: a liability is recognised and remeasured to fair value at each reporting date (and at settlement) with changes in profit or loss. Equity-settled: measured at grant-date fair value and not remeasured.

Under IFRS 13, what is the definition of fair value?

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

Describe the three levels of the IFRS 13 fair value hierarchy.

Level 1: quoted (unadjusted) prices in active markets for identical assets/liabilities. Level 2: inputs other than Level 1 that are observable directly or indirectly. Level 3: unobservable inputs.

Under IFRS 13, what is meant by the 'highest and best use' of a non-financial asset?

Fair value is measured assuming the use by market participants that maximises the asset's value — the use that is physically possible, legally permissible, and financially feasible.

Under IAS 34, what is the minimum content of an interim financial report?

A condensed statement of financial position, condensed statement of profit or loss and OCI, condensed statement of changes in equity, condensed statement of cash flows, and selected explanatory notes.

Under IAS 34, which approach is used for measuring income and expenses in interim periods — discrete or integral?

The discrete approach: each interim period is treated as a distinct accounting period, so measurements are made on a year-to-date basis and recognition follows the same principles as annual statements (with limited exceptions).

What does IFRIC 10 conclude about impairment losses in interim reporting?

An impairment loss recognised in a previous interim period for goodwill (or certain investments) must NOT be reversed in a subsequent interim period or at year-end, even if it would not have been recognised at the annual reporting date.