CIMA F1 cheat sheet

Conceptual framework qualitative characteristics: relevance (predictive and confirmatory value, materiality) and faithful representation (complete, neutral, free from error); comparability, verifiability, timeliness and understandability are enhancing.

Elements: asset = present economic resource controlled from past events with potential to produce economic benefits; liability = present obligation to transfer an economic resource; equity = residual interest; income and expenses arise from changes in assets/liabilities other than owner contributions/distributions.

Recognition criteria: an element is recognised when it meets the definition and recognition provides users with useful information; measurement bases are historical cost and current value (fair value, value in use/fulfilment value, current cost).

IAS 1 structure: statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity, statement of cash flows, and notes; comparatives and a statement that the accounts comply with IFRS are required.

IAS 1 going concern: management assesses ability to continue for at least 12 months from the reporting date; if not going concern, accounts are prepared on a break-up basis with disclosure of the reason.

IAS 8: changes in accounting policy are applied retrospectively, changes in estimate prospectively, and material prior-period errors are corrected retrospectively; all require disclosure of nature and effect.

IAS 10 events after the reporting period: adjusting events (conditions existing at year end, e.g. settlement of a court case) change the figures; non-adjusting events (e.g. a fire after year end) are disclosed if material.

IAS 37 provisions are recognised when a present obligation from a past event probably (more likely than not) requires an outflow reliably measurable; contingent liabilities are disclosed, contingent assets are not recognised.

Revenue (IFRS 15) five-step model: identify the contract, identify performance obligations, determine transaction price, allocate the price to obligations, recognise revenue when each obligation is satisfied (over time or at a point in time).

The IASB issues IFRS: exposure draft, comment period, redeliberation, and publication; the IFRS Interpretations Committee resolves application issues and the IFRS Foundation oversees and funds the process.

The IFRS Advisory Council and the Monitoring Board support governance of the standard-setting process; national standard setters and regulators (e.g. FRC, SEC) enforce or endorse standards locally.

Conceptual framework hierarchy for choosing a policy when no standard applies: requirements in IFRS on similar matters, then definitions and recognition criteria in the framework; management judgement is disclosed.

Corporate governance codes (e.g. UK Corporate Governance Code) operate on a 'comply or explain' basis, covering board leadership, division of responsibilities, composition, audit/risk and remuneration.

Audit committee: at least three independent non-executive directors (smaller companies: two), including one with recent relevant financial experience; it oversees external audit, internal control and financial reporting.

External audit provides reasonable (not absolute) assurance that financial statements are free from material misstatement; the auditor expresses an opinion and reports on going concern and key audit matters.

Directors' duties: act within powers, promote the success of the company, exercise independent judgement and reasonable care/skill, avoid conflicts, and declare interests in proposed transactions.

Insider dealing and market abuse rules prohibit trading on unpublished price-sensitive information; listed companies must disclose inside information as soon as possible (e.g. UK MAR).

IAS 16 initial measurement at cost: purchase price net of trade discounts, directly attributable costs to bring the asset to location and condition (e.g. delivery, installation, testing), plus the initial estimate of dismantling costs.

Depreciation methods: straight line = (cost − residual value) / useful life; reducing balance = carrying amount × rate; units of production = depreciable amount × (units used / total expected units).

IAS 16 revaluation model: carrying amount is fair value at revaluation date less subsequent depreciation; increases go to OCI and a revaluation surplus, decreases go to profit or loss unless reversing a previous gain.

IAS 16 review of useful life, residual value and depreciation method at least annually; changes are prospective (IAS 8 estimate change). Derecognition gain/loss = proceeds − carrying amount, reported in profit or loss.

IAS 38: an intangible is recognised only if probable future economic benefits and cost can be measured reliably; internally generated brands, mastheads, customer lists and goodwill are never recognised.

IAS 38 research expenditure is expensed; development expenditure is capitalised only if technical feasibility, intention and ability to complete, probable benefits, adequate resources and reliable measurement are all demonstrated.

IAS 23 borrowing costs directly attributable to a qualifying asset are capitalised; capitalisation starts when expenditure and borrowing costs are incurred and activities begin, and is suspended during extended interruptions.

IAS 2 inventory is measured at the lower of cost and net realisable value (NRV = estimated selling price less costs to complete and costs to sell); cost includes purchase, conversion and other costs to bring inventory to its present location.

IAS 2 cost formulas: specific identification for items not ordinarily interchangeable, otherwise FIFO or weighted average; LIFO is prohibited. Write-downs are expensed and reversals are limited to the original write-down.

Cost of sales = opening inventory + purchases + carriage inwards − closing inventory; gross profit = revenue − cost of sales; profit before tax = gross profit − operating expenses + other income − finance costs.

Accruals: expense recognised but not yet invoiced, credited to accruals (liability); prepayments: amount paid in advance, debited to prepayments (asset); both are adjusted at the year end and reversed in the next period.

Suspense account: opened for an unknown difference in the trial balance; it must be cleared before final accounts are prepared, with each correction posted through the suspense account where needed.

Errors affecting the trial balance: single entry, addition error and transposition of figures in one account; errors not affecting it include errors of principle, omission, commission, original entry, reversal and compensating errors.

Statement of cash flows (IAS 7) categories: operating, investing and financing; interest and dividends paid may be operating or financing, and dividends received may be operating or investing, applied consistently.

Indirect method operating cash flow: profit before tax + depreciation/amortisation + finance costs − increase in receivables − increase in inventory + increase in payables − interest paid − tax paid.

Statement of changes in equity columns: share capital, share premium, revaluation surplus, retained earnings and total; movements are profit for the year, OCI, dividends paid, and share issues.

Consolidation basics: goodwill = consideration transferred + NCI + previously held interest − fair value of net identifiable assets acquired; intra-group balances and unrealised profits are eliminated.

Ratio analysis: gross margin = gross profit/revenue; net margin = profit before tax/revenue; ROCE = operating profit/(equity + non-current liabilities); current ratio = current assets/current liabilities; gearing = debt/(debt + equity).