Financial Accounting and Reporting (IFRS)
Concepts an auditor must apply
Auditors must understand the IFRS framework well enough to evaluate whether statements are fairly presented. Key areas: IAS 1 (presentation, going concern, fair presentation), IAS 8 (accounting policies, changes, errors), IFRS 15 (revenue - five-step model, performance obligations, variable consideration), IFRS 16 (leases - right-of-use assets and liabilities), IAS 36 (impairment), IAS 37 (provisions and contingencies), IFRS 9 (financial instruments, expected credit losses), and IFRS 13 (fair value). Also know IAS 10 (events after the reporting period) and IAS 21 (foreign currency).
Traps in exam questions
- Confusing adjusting vs non-adjusting events after the reporting period (IAS 10).
- Treating a provision as recognized when the obligation is only possible (that is a contingent liability, disclosed not recognized).
- Misapplying IFRS 15 by recognizing revenue on cash receipt rather than on satisfaction of a performance obligation.
- Forgetting expected credit losses under IFRS 9 versus the older incurred-loss model.
- Overlooking going concern indicators under IAS 1.
Rule of thumb
For any transaction question, ask: What is the substance, when is the obligation or performance satisfied, and what is the measurement basis? Substance over form drives most IFRS answers.
Worked example
A customer pays in advance for goods delivered next year. Under IFRS 15, revenue is not recognized on receipt; a contract liability is recorded and revenue recognized when the performance obligation is satisfied.