Institute of Chartered Accountants in England and Wales (ICAEW) ACA Professional Level: Financial Reporting and Audit Syllabus

Professional Level: Financial Reporting and Audit syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Professional Level: Financial Reporting and Audit in Institute of Chartered Accountants in England and Wales (ICAEW) ACA, not a summary of it.

1. 1

   Conceptual Framework and Single-Entity Reporting

   4 topics

   • The IFRS Conceptual Framework
     • Qualitative characteristics of useful information
     • Recognition, measurement and derecognition
   • Presentation of financial statements (IAS 1)
     • Statement of profit or loss and other comprehensive income
     • Statement of changes in equity
   • Statement of cash flows (IAS 7)
   • Accounting policies, estimates and errors (IAS 8)
2. 2

   Recognition and Measurement of Key Elements

   5 topics

   • Property, plant and equipment and investment property
     • Cost and revaluation models (IAS 16)
     • Investment property (IAS 40)
   • Revenue from contracts with customers (IFRS 15)
     • The five-step model
     • Performance obligations and transaction price
   • Leases (IFRS 16) and financial instruments (IFRS 9)
   • Provisions, contingencies and events after the reporting period
     • Provisions and contingent liabilities (IAS 37)
     • Adjusting and non-adjusting events (IAS 10)
   • Inventories, intangibles and impairment
     • Intangible assets (IAS 38)
     • Impairment of assets (IAS 36)
3. 3

   Group Financial Statements

   4 topics

   • Consolidated statement of financial position
     • Goodwill and non-controlling interests
     • Fair value adjustments and intra-group balances
   • Consolidated statement of profit or loss
   • Associates and equity accounting (IAS 28)
   • UK GAAP and FRS 102 distinctions
4. 4

   Planning the Audit Engagement

   4 topics

   • Engagement acceptance and terms
     • Preconditions for an audit and the engagement letter
     • Quality management at engagement level (ISQM)
   • Understanding the entity and assessing risk
     • Risk of material misstatement and the audit risk model
     • Materiality and performance materiality
   • Audit strategy and the overall plan
   • Fraud, laws and regulations in an audit
5. 5

   Audit Evidence, Completion and Reporting

   4 topics

   • Designing audit procedures by financial statement area
     • Substantive procedures and tests of controls
     • Audit of accounting estimates and using experts
   • Sampling and the use of data analytics
   • Completion procedures
     • Going concern assessment
     • Written representations and subsequent events review
   • The auditor's report
     • Unmodified opinions and key audit matters
     • Modified opinions and emphasis of matter paragraphs

Professional Level: Financial Reporting and Audit flashcards for Institute of Chartered Accountants in England and Wales (ICAEW) ACA

24 of 68 cards from the Professional Level: Financial Reporting and Audit deck — real questions with worked answers.

1. Per the IFRS Conceptual Framework, what is the objective of general purpose financial reporting?

   To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

2. What are the two fundamental qualitative characteristics of useful financial information under the IFRS Conceptual Framework?

   Relevance (capable of making a difference to decisions; includes materiality) and faithful representation (complete, neutral and free from error).

3. Name the four enhancing qualitative characteristics in the IFRS Conceptual Framework.

   Comparability, verifiability, timeliness and understandability.

4. State the Conceptual Framework definitions of an asset and a liability (2018 version).

   An asset is a present economic resource controlled by the entity as a result of past events. A liability is a present obligation to transfer an economic resource as a result of past events. An economic resource is a right with the potential to produce economic benefits.

5. Under the IFRS Conceptual Framework, what two criteria must be met to recognise an asset or liability?

   Recognition is appropriate if it provides users with relevant information about the item and a faithful representation, taking into account the cost constraint (benefits of the information should exceed the cost of providing it).

6. List the complete set of financial statements required by IAS 1 Presentation of Financial Statements.

   Statement of financial position; statement of profit or loss and other comprehensive income; statement of changes in equity; statement of cash flows; notes (including accounting policies); and comparative information. A third balance sheet is required when there is a retrospective restatement.

7. Under IAS 1, what is the difference between an item presented in profit or loss and one presented in other comprehensive income (OCI)?

   Profit or loss captures most income and expenses for the period; OCI contains items that other IFRSs require/permit to be excluded from P/L (e.g. revaluation surpluses, certain remeasurements). OCI items are split between those that will and will not be reclassified (recycled) to P/L.

8. What is the IAS 1 default classification threshold for a liability to be current?

   A liability is current if it is expected to be settled in the normal operating cycle, held for trading, due to be settled within 12 months, or the entity has no unconditional right to defer settlement for at least 12 months after the reporting period; otherwise it is non-current.

9. Under IAS 7, into which three categories are cash flows classified in the statement of cash flows?

   Operating activities, investing activities and financing activities.

10. Under IAS 7, how does the indirect method derive cash generated from operations?

    Start with profit before tax, then adjust for non-cash items (e.g. depreciation, amortisation, profit/loss on disposal), remove investing/financing items (e.g. interest, dividends received), and adjust for changes in working capital (inventories, receivables, payables).

11. Under IAS 7, how may interest paid, interest received and dividends received be classified?

    Each may be classified as operating, or interest/dividends paid as financing and interest/dividends received as investing, applied consistently. Dividends paid are usually classified as financing (or operating).

12. Under IAS 8, define accounting policies versus accounting estimates.

    Accounting policies are the specific principles, bases, conventions, rules and practices applied in preparing financial statements. Accounting estimates are monetary amounts subject to measurement uncertainty (e.g. allowance for doubtful debts, useful lives).

13. Under IAS 8, how are changes in accounting policy, changes in estimate and prior period errors accounted for?

    Changes in accounting policy and corrections of prior period errors are applied retrospectively (restate comparatives/opening balances). Changes in accounting estimate are applied prospectively (current and future periods).

14. Under IAS 8, when is a change in accounting policy permitted?

    Only when required by an IFRS, or when the change results in financial statements providing reliable and more relevant information about the effects of transactions on the entity's position, performance or cash flows.

15. Under IAS 16, what is the initial cost of an item of property, plant and equipment?

    Purchase price (including import duties and non-refundable taxes, net of trade discounts) plus directly attributable costs of bringing the asset to its location and condition for intended use, plus the initial estimate of dismantling/restoration costs.

16. Under IAS 16, contrast the cost model and the revaluation model for measuring PPE after recognition.

    Cost model: cost less accumulated depreciation and impairment. Revaluation model: fair value at revaluation date less subsequent accumulated depreciation and impairment, with revaluations kept sufficiently up to date and applied to the whole class.

17. Under IAS 16, how are an upward and a subsequent downward revaluation of PPE recognised?

    An increase goes to OCI/revaluation surplus (unless reversing a previous decrease charged to P/L). A decrease is charged to P/L (unless reversing a previous surplus, in which case it reduces the revaluation surplus in OCI first).

18. Under IAS 40, define investment property and state the two measurement models available.

    Investment property is land/buildings held to earn rentals or for capital appreciation (not for use in production/supply or sale in the ordinary course of business). After recognition, an entity chooses the fair value model (gains/losses in P/L, no depreciation) or the cost model for all investment property.

19. State the IFRS 15 five-step model for recognising revenue from contracts with customers.

    1) Identify the contract; 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) each performance obligation is satisfied.

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

    Over time if: the customer simultaneously receives and consumes the benefits as the entity performs; or the entity's performance creates/enhances an asset the customer controls; or the asset has no alternative use and the entity has an enforceable right to payment for performance completed to date. Otherwise, at the point control transfers.

21. Under IFRS 15, how is variable consideration measured and what is the constraint?

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

22. Under IFRS 16, how does a lessee initially recognise a lease?

    Recognise a right-of-use asset and a lease liability. The liability is the present value of lease payments discounted at the rate implicit in the lease (or the incremental borrowing rate). The right-of-use asset = liability + initial direct costs + prepayments + estimated dismantling costs − lease incentives received.

23. 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; payments may be recognised on a straight-line basis as an expense.

24. Under IFRS 16, how does a lessor classify and account for leases?

    As finance leases (transfer substantially all risks and rewards of ownership; derecognise the asset and recognise a net investment/receivable) or operating leases (retain the asset and recognise lease income, usually straight-line).

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