CA ANZ Core 3: FAR cheat sheet

Objective of general purpose financial reporting: 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.

Fundamental qualitative characteristics: relevance (predictive value, confirmatory value, materiality) and faithful representation (complete, neutral, free from error). Enhancing characteristics: comparability, verifiability, timeliness, understandability.

Asset definition (2018 Framework): a present economic resource controlled by the entity as a result of past events; economic resource is a right that has the potential to produce economic benefits.

Liability definition: a present obligation of the entity to transfer an economic resource as a result of past events; obligation is a duty or responsibility the entity has no practical ability to avoid.

Equity is the residual interest in the assets of the entity after deducting all its liabilities; it is not defined independently of assets and liabilities.

Recognition criteria: recognition is appropriate if it provides relevant information and a faithful representation, and the benefits exceed the costs; measurement uncertainty alone does not preclude recognition.

Measurement bases: historical cost, fair value, value in use (assets) / fulfilment value (liabilities), and current cost. The Framework does not prescribe a single basis for all items.

Materiality: information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions; materiality is entity-specific and applies to recognition, measurement, presentation and disclosure.

AASB 108/IAS 8 hierarchy: apply IFRS Standards dealing with similar issues, then definitions/criteria in the Conceptual Framework, then recent pronouncements of other standard setters using a similar framework, then other financial reporting literature and accepted practice.

AASB 101/IAS 1 requires a complete set: statement of financial position, statement of profit or loss and OCI, statement of changes in equity, statement of cash flows, notes, and comparative prior-period information.

Fair presentation and compliance with IFRS: departure is permitted only in the extremely rare case where compliance would be so misleading that it conflicts with the objective of financial statements, with full disclosure of the departure.

Going concern assumption: if the entity is not a going concern or management is aware of material uncertainties, disclose that fact, the basis of preparation and the reasons.

Current/non-current classification: an asset is current if realised in the normal operating cycle, held primarily for trading, expected to be realised within 12 months, or is cash/cash equivalent without restriction.

Offsetting is not permitted unless required or permitted by a Standard; separate disclosure of material items by nature or function is required.

Minimum line items on the statement of financial position include PP&E, investment property, intangibles, financial assets, inventories, trade receivables, cash, provisions, financial liabilities, tax liabilities/assets, and issued capital and reserves.

OCI items are classified as either reclassifiable to profit or loss (e.g., foreign currency translation, cash flow hedges) or not reclassifiable (e.g., revaluation surplus, remeasurements of defined benefit plans).

AASB 101 requires disclosure of the reporting entity, whether the financial statements are consolidated or separate, the presentation currency, and the level of rounding used.

AASB 108 requires disclosure of new/amended standards applied, standards issued but not yet effective, and the nature and effect of material prior-period errors or changes in accounting policy.

AASB 15/IFRS 15 five-step model: (1) identify the contract, (2) identify performance obligations, (3) determine the transaction price, (4) allocate the transaction price, (5) recognise revenue when/as performance obligations are satisfied.

A contract exists if it has approval, identifiable rights and payment terms, commercial substance, and it is probable that consideration will be collected.

A performance obligation is a promise to transfer a distinct good or service (or a series of distinct goods/services that are substantially the same and have the same pattern of transfer).

Variable consideration is included using the expected value or most likely amount method, constrained to the amount for which it is highly probable that no significant revenue reversal will occur.

Transaction price adjustments include significant financing components, non-cash consideration, and consideration payable to the customer; sales taxes collected on behalf of third parties are excluded.

Allocate the transaction price based on stand-alone selling prices; if not directly observable, use an adjusted market assessment, expected cost plus a margin, or the residual approach (restricted circumstances).

Revenue is recognised over time if the customer simultaneously receives and consumes benefits, the entity creates or enhances an asset the customer controls, or the asset has no alternative use and the entity has an enforceable right to payment for performance to date.

Over-time progress is measured using input or output methods; the cost-to-cost method is an input method. Revenue for a right to invoice is recognised in the amount the entity has a right to invoice.

Contract costs: incremental costs of obtaining a contract are capitalised if expected to be recovered (practical expedient if amortisation period is 12 months or less); costs to fulfil a contract are capitalised if they relate directly to the contract, generate resources, and are expected to be recovered.

Initial recognition of PP&E: capitalise purchase price plus directly attributable costs to bring the asset to the location and condition necessary for its intended use; exclude training costs, advertising and start-up costs.

Depreciation begins when the asset is available for use; residual value and useful life are reviewed at least annually and changes are accounted for prospectively as a change in accounting estimate.

Cost model: cost less accumulated depreciation and accumulated impairment losses. Revaluation model: fair value at revaluation date less subsequent depreciation and impairment; revaluations must be to a whole class of assets.

Revaluation increases are recognised in OCI and accumulated in a revaluation surplus; decreases are recognised in profit or loss, except to the extent they reverse a prior surplus for the same asset.

Intangible recognition: identifiable (separable or arising from contractual/legal rights), controlled, and probable future economic benefits. Internally generated goodwill, brands, mastheads and customer lists are not recognised.

Research costs are expensed; development costs are capitalised only if technical feasibility, intention and ability to complete, probable future benefits, available resources, and reliable measurement of costs are all demonstrated.

Impairment (AASB 136/IAS 36): an asset is impaired when carrying amount exceeds recoverable amount, defined as the higher of fair value less costs of disposal and value in use.

Value in use is the present value of expected future cash flows, discounted at a pre-tax rate reflecting current market assessments of time value of money and asset-specific risk; cash flow projections normally cover a maximum of five years.

Impairment losses for a cash-generating unit are allocated first to goodwill, then pro rata to other assets based on carrying amount, not below the highest of fair value less costs of disposal, value in use, or zero.

Reversal of an impairment loss is recognised in profit or loss, except for reversals of revalued assets (OCI) and goodwill (never reversed).

AASB 16/IFRS 16 lessee model: recognise a right-of-use asset and a lease liability at the commencement date for all leases, with optional exemptions for short-term leases (12 months or less) and low-value assets.

Lease liability is measured at the present value of lease payments not paid at commencement, discounted using the interest rate implicit in the lease or, if not readily determinable, the lessee's incremental borrowing rate.

Lease payments included in measurement: fixed payments less incentives, variable payments linked to an index or rate, residual value guarantees, exercise price of a purchase option reasonably certain to be exercised, and termination penalties.

Right-of-use asset = lease liability + initial direct costs + prepaid lease payments - lease incentives received + estimated restoration costs.

Subsequent measurement: lease liability accretes interest using the constant periodic rate and is reduced by lease payments; the ROU asset is depreciated over the lease term or useful life if ownership transfers.

Lessee remeasures the lease liability on changes in lease term, purchase option assessment, residual value guarantees, or index/rate changes; the adjustment is generally made to the ROU asset.

Lessor classification: a finance lease transfers substantially all risks and rewards incidental to ownership; otherwise it is an operating lease. Indicators include lease term covering the major part of economic life and PV of payments approximating fair value.

Finance lease lessor: recognise a net investment in the lease at the amount of the gross investment discounted at the interest rate implicit in the lease; recognise finance income over the term.

Sale and leaseback: if the transfer qualifies as a sale under AASB 15, the seller-lessee recognises a right-of-use asset at the proportion of previous carrying amount relating to retained rights and recognises gain only to the extent of rights transferred to the buyer-lessor.

Classification of financial assets (AASB 9/IFRS 9) depends on the business model (hold to collect, hold to collect and sell, other) and the contractual cash flow characteristics (solely payments of principal and interest, SPPI).

Amortised cost applies if the asset is held within a hold-to-collect business model and passes the SPPI test; fair value through OCI if hold-to-collect-and-sell and SPPI; otherwise fair value through profit or loss.

Equity investments are measured at FVTPL unless an irrevocable election is made at initial recognition to present fair value changes in OCI (no recycling of gains/losses on derecognition, dividends in P&L).

Expected credit loss model: loss allowance equals 12-month ECL initially, moving to lifetime ECL when credit risk increases significantly; simplified approach uses lifetime ECL for trade receivables.

Financial liabilities are measured at amortised cost unless held for trading, a derivative, or designated at FVTPL; the effective interest method allocates interest over the expected life.

Fair value (AASB 13/IFRS 13) is the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Fair value hierarchy: Level 1 quoted prices in active markets for identical assets; Level 2 observable inputs other than Level 1; Level 3 unobservable inputs.

Highest and best use applies to non-financial assets; valuation techniques include the market approach, income approach and cost approach, applied consistently.

Hedge accounting requires formal designation and documentation, an economic relationship between hedged item and instrument, and a hedge effectiveness assessment; ineffectiveness is recognised in profit or loss.

AASB 137/IAS 37 recognition criteria for a provision: a present obligation (legal or constructive) arising from a past event, probable outflow of resources, and a reliable estimate of the amount.

If the outflow is not probable or the amount cannot be measured reliably, no provision is recognised; a contingent liability is disclosed unless the possibility of outflow is remote.

Measurement: best estimate of the expenditure required to settle the obligation at the reporting date, discounted where the effect of time value is material, using a pre-tax rate reflecting current market assessments and risks specific to the liability.

Onerous contracts: a provision is recognised for the present obligation under the contract when the unavoidable costs of meeting the contract exceed the economic benefits expected to be received.

Restructuring provisions are recognised only when a detailed formal plan exists and a valid expectation has been raised in those affected (constructive obligation) before the reporting date.

Reimbursements are recognised as a separate asset only when virtually certain; the net amount presented in profit or loss. Provisions are reviewed at each reporting date and adjusted.

Short-term employee benefits are undiscounted and expensed as the service is rendered; accumulating compensated absences are recognised when the benefit accrues to employees.

Defined contribution plans: expense equals the contribution payable. Defined benefit plans: measure the net defined benefit liability/asset as the present value of the defined benefit obligation less the fair value of plan assets.

Defined benefit remeasurements (actuarial gains/losses, return on plan assets excluding interest, asset ceiling effects) are recognised in OCI and are not reclassified to profit or loss.

AASB 3/IFRS 3 acquisition method: identify the acquirer, determine the acquisition date, recognise and measure identifiable assets acquired and liabilities assumed at fair value, and recognise goodwill or a gain from a bargain purchase.

Goodwill = consideration transferred + non-controlling interest + previously held equity interest - net fair value of identifiable assets acquired and liabilities assumed.

Non-controlling interest may be measured at fair value (full goodwill) or at the proportionate share of identifiable net assets (partial goodwill); the choice is made per transaction.

Acquisition-related costs are expensed as incurred; costs to issue debt or equity instruments are accounted for under AASB 9 and AASB 132 respectively.

Contingent consideration is measured at fair value at the acquisition date; subsequent changes classified as a liability are remeasured through profit or loss (measurement period adjustments excepted).

Control (AASB 10/IFRS 10) exists when the investor has power over the investee, exposure or rights to variable returns, and the ability to use its power to affect those returns.

Consolidation: combine like items of assets, liabilities, equity, income and expenses; eliminate intragroup balances, transactions, income and expenses; eliminate the parent's investment against the subsidiary's equity.

Intragroup profits in inventory or PPE are eliminated in full; NCI is affected only by downstream/upstream allocation rules based on whether the seller is the parent or subsidiary.

A gain from a bargain purchase is recognised in profit or loss after reassessing the identification and measurement of identifiable assets, liabilities and consideration.

AASB 112/IAS 12 uses the balance sheet method: recognise a deferred tax liability/asset for temporary differences between the carrying amount and tax base of assets and liabilities.

Temporary differences are taxable (carrying amount > tax base for assets) or deductible (carrying amount < tax base for assets); deductible differences support a deferred tax asset only if taxable profit will be available.

Deferred tax is measured at the tax rates expected to apply when the asset is realised or liability settled, based on rates enacted or substantively enacted by the reporting date.

Exceptions: no deferred tax on initial recognition of goodwill, or on initial recognition of an asset/liability in a transaction that is not a business combination and affects neither accounting nor taxable profit.

Deferred tax assets and liabilities are offset only if the entity has a legally enforceable right to offset current tax and they relate to income taxes levied by the same taxation authority.

Current and deferred tax are recognised in profit or loss except to the extent they relate to items recognised in OCI or equity (e.g., revaluation surplus, remeasurements of defined benefit plans).

Functional currency is the currency of the primary economic environment; foreign currency transactions are translated at the spot rate on the transaction date, and monetary items are retranslated at the closing rate with differences in profit or loss.

Non-monetary items at historical cost are not retranslated; those at fair value are translated at the rate on the date fair value was determined.

Translation of a foreign operation: assets and liabilities at the closing rate, income and expenses at the transaction-date rate (average rate permitted), with exchange differences recognised in OCI as a foreign currency translation reserve and reclassified to profit or loss on disposal.

Profitability: gross margin = gross profit / revenue; operating margin = operating profit / revenue; net margin = profit after tax / revenue; return on assets = profit / average total assets.

Return on equity = profit attributable to ordinary shareholders / average ordinary shareholders' equity; the DuPont decomposition is net margin × asset turnover × financial leverage.

Liquidity: current ratio = current assets / current liabilities; quick ratio = (current assets - inventories - prepayments) / current liabilities; cash ratio = cash / current liabilities.

Solvency: debt-to-equity = total liabilities / total equity; interest cover = EBIT / finance costs; net debt = interest-bearing debt - cash and cash equivalents.

Efficiency: inventory turnover = cost of sales / average inventory; receivables days = average receivables / revenue × 365; payables days = average payables / cost of sales × 365; cash conversion cycle = inventory days + receivables days - payables days.

Investor ratios: EPS = profit attributable to ordinary shareholders / weighted average ordinary shares; P/E = share price / EPS; dividend payout = dividends per share / EPS.

Limitations of ratio analysis: differing accounting policies, historical cost, window dressing at reporting date, industry and size differences, and non-financial factors not captured.

Earnings quality indicators: divergence between profit and operating cash flow, rising accruals, capitalised costs, related-party transactions, and frequent changes in accounting estimates.

Common-size analysis expresses each line item as a percentage of revenue (income statement) or total assets (balance sheet) to compare entities of different scale.