CA ANZ Core 3: FAR common mistakes
CA ANZ Core 3: FAR · Understand the traps and how to avoid them.
When a question gives a scenario and asks which reporting treatment applies, candidates answer from general memory of the standard instead of identifying which specific recognition, measurement or disclosure criterion the scenario is testing, and then pick the option that 'sounds like the standard'.
Core 3 items are written as short case facts with one discriminating criterion embedded (for example whether control passed, whether a performance obligation is distinct, whether a present obligation exists). Candidates skim for topic keywords, match them to a standard, and never isolate the deciding fact, so a plausible-sounding but inapplicable rule gets selected.
What to do instead
Before reading the options, write one line: 'The decision I must make is X.' Then list the two or three criteria that govern X and test each against the facts in the stem, marking facts that are absent as 'not given, so cannot conclude'. Only then read the options and eliminate any that rely on a criterion the stem does not establish.
Candidates classify an item as a liability or equity, or as current or non-current, by its label (for example 'redeemable preference shares' or 'loan') rather than by its contractual terms and the entity's unconditional right to defer settlement.
The conceptual framework and IAS 1/AASB 101 turn on substance: the presence of a contractual obligation to deliver cash, the counterparty's right to redeem, and whether the right to defer settlement exists at reporting date. Labels are intuitive and fast, and candidates under time pressure default to the label, missing settlement-in-substance arrangements and breach-of-covenant reclassifications.
What to do instead
For every balance sheet classification question, extract the contractual features explicitly: who can demand payment, when, in what form, and whether the entity has an unconditional right to avoid outflow for at least twelve months. Classify on those features, and treat management intent and the instrument's name as irrelevant unless the standard says otherwise.
On revenue questions, candidates recognise revenue when cash is received or when the contract is signed, and they treat multiple-element contracts as a single performance obligation instead of separating distinct goods and services and allocating the transaction price.
The five-step model is known in outline but not operationalised. Candidates default to the older cash/risk-and-rewards intuition, and they skip the distinctness test and the standalone-selling-price allocation because those steps feel like extra work when the question seems to ask only 'how much revenue'?
What to do instead
Run the five steps mechanically on every revenue item: identify the contract, list each promised good or service, test each for distinctness (capable of being distinct and distinct within the context), allocate the price on relative standalone selling prices, and recognise on transfer of control. Where a variable element exists, state whether it is constrained before including it.
Candidates compute depreciation and impairment by applying the rate or recoverable amount to the wrong base, or they reverse an impairment of goodwill, or they fail to reassess useful life and residual value, and they present the resulting figures without checking the carrying amount against the recoverable amount at the same date.
PPE and impairment questions combine several mechanics (cost model versus revaluation model, component depreciation, cash-generating units, value in use versus fair value less costs of disposal). Candidates hold the mechanics loosely and apply a remembered formula to a base that the question has deliberately altered, such as a revalued amount or a revised residual value.
What to do instead
Write the carrying amount roll-forward before computing anything: opening carrying amount, plus additions, less disposals, less depreciation for the period, equals closing carrying amount. Compute recoverable amount as the higher of fair value less costs of disposal and value in use, compare with the carrying amount after depreciation, and remember that a goodwill impairment is never reversed while other reversals are capped at the depreciated original cost.
Candidates decide lease classification using a single indicator, usually the lease term relative to useful life, and ignore the present value of lease payments, transfer of ownership, bargain purchase options and the lessee's incremental borrowing rate.
Lease questions supply several facts and candidates anchor on the most visually obvious one. The discounting step is also the most error-prone, so candidates avoid it and reason qualitatively, which produces the wrong classification and therefore the wrong measurement of the right-of-use asset and lease liability.
What to do instead
Test every classification indicator in order and record a yes/no for each: ownership transfer, bargain purchase option, term covering the major part of economic life, present value of payments substantially all of fair value, and specialised asset with no alternative use. Compute the present value explicitly using the rate implicit in the lease if available, otherwise the incremental borrowing rate, and show the discounting.
Candidates measure financial instruments at the wrong category, mixing amortised cost, fair value through other comprehensive income and fair value through profit or loss, and they forget to separate the host contract from an embedded derivative or to apply the expected credit loss model to trade receivables.
Classification depends on the entity's business model and the contractual cash flow characteristics, two tests that are easy to state but require the candidate to read the instrument's terms. Candidates instead memorise 'equity investments go to OCI' or 'loans go to amortised cost' and apply the shortcut to instruments whose terms defeat it.
What to do instead
For each instrument, state the business model (hold to collect, hold to collect and sell, or other) and then test whether cash flows are solely payments of principal and interest. Only if both tests are met is amortised cost or fair value through OCI available. Separately state the treatment of any embedded derivative and, for receivables, apply the simplified expected credit loss matrix unless the question indicates otherwise.
Candidates recognise a provision whenever a possible outflow exists, without establishing a present obligation from a past event and a reliable estimate, and they measure the provision at the single most likely outcome rather than the expected value where a range of outcomes applies.
Provisions, contingencies and employee benefits share vocabulary ('likely', 'possible', 'probable') that candidates conflate across standards. The distinction between a provision, a contingent liability and a disclosure-only item is a threshold judgement, and candidates resolve uncertainty by recognising something rather than by applying the threshold.
What to do instead
Apply a three-part gate before recognising: present obligation arising from a past event, probable outflow, and reliable estimate. If any element fails, classify as a contingent liability and disclose rather than recognise. Then choose the measurement basis deliberately: expected value for a large population of similar items, most likely outcome for a single obligation, and discount where the effect is material.
Candidates compute goodwill as the simple excess of consideration over the subsidiary's net assets, omitting the fair value of previously held interests, non-controlling interest measurement choice, contingent consideration at acquisition-date fair value, and the identification and measurement of identifiable intangibles.
Consolidation questions reward a disciplined acquisition-date schedule, but candidates attempt the calculation in one mental step. Intangibles not recognised by the subsidiary (brands, customer relationships, in-process research) are especially easy to miss because the subsidiary's own balance sheet does not show them.
What to do instead
Build an acquisition-date table: consideration transferred, plus fair value of previously held equity interest, plus non-controlling interest measured at fair value or proportionate share, less the fair value of identifiable net assets acquired, equals goodwill or a bargain gain. Adjust the subsidiary's assets and liabilities to fair value line by line, including intangibles, before computing the residual.
Candidates treat deferred tax and foreign currency translation as arithmetic add-ons: they apply the tax rate to accounting profit without adjusting for permanent and temporary differences, or they translate all foreign currency balances at the closing rate regardless of whether they are monetary or non-monetary.
Both areas look like simple multiplication or rate application, so candidates skip the classification step that determines which rate or which tax base applies. The underlying concept, tax base versus carrying amount and monetary versus non-monetary, is what the question is testing.
What to do instead
For tax, compute the tax base of each asset and liability, identify temporary differences, separate permanent differences, and apply the enacted or substantively enacted rate expected to apply on reversal. For foreign currency, classify each item as monetary or non-monetary first, then translate monetary items at the closing rate with differences to profit or loss, and non-monetary items at the historical rate.
On analysis and interpretation questions, candidates compute ratios correctly but then interpret them in isolation, ignoring the effect of accounting policy choices, one-off items, and the interaction between profitability, liquidity and gearing, and they fail to state the limitation of the ratio they calculated.
Ratio computation feels like the task, so candidates stop when the number appears. Interpretation requires linking the number to the business context given in the stem and to the accounting policies disclosed, which is a further reasoning step that is skipped under time pressure.
What to do instead
For each ratio, state the formula, the result, the direction of change against the comparator, and one sentence on what drives it and one on what it does not tell you. Explicitly adjust for policy differences and non-recurring items before comparing, and finish each interpretation with the limitation, such as different depreciation policies or a year-end seasonal balance.