CPA Financial Reporting 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 deciding whether to provide resources to it.

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

Enhancing qualitative characteristics: comparability, verifiability, timeliness and understandability; they cannot make irrelevant or unfaithful information useful.

Asset: a present economic resource controlled by the entity as a result of past events, where an economic resource is a right that has the potential to produce economic benefits.

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

Income: increases in assets or decreases in liabilities that increase equity, other than contributions from holders of equity claims; expenses are decreases other than distributions to holders.

Measurement bases allowed: historical cost and current value, the latter comprising fair value, value in use (or fulfilment value) and current cost.

Recognition: an item is recognised only if it gives relevant information and a faithful representation and the benefits exceed the cost; derecognition occurs when the recognition criteria are no longer met.

The cost constraint means information must be worth the cost of providing it, which affects the level of detail and the choice between recognition and disclosure.

A complete set under IAS 1 comprises a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows and notes, with comparatives.

Assets and liabilities are split current/non-current unless a liquidity presentation is more relevant; an operating cycle longer than twelve months extends the current classification.

OCI is grouped into items that will not be reclassified to profit or loss and items that may be reclassified subsequently, with tax and reclassification adjustments disclosed.

Items are not offset unless required or permitted by an IFRS; materiality and aggregation judgements are disclosed as significant judgements.

Fair value is an exit price in an orderly transaction between market participants at the measurement date; transaction costs are not deducted and entity-specific synergies are excluded.

Valuation techniques fall into the market approach, income approach and cost approach; an entity maximises the use of relevant observable inputs and minimises unobservable inputs.

Fair value hierarchy: Level 1 quoted prices in active markets for identical items, Level 2 observable inputs other than quoted prices, Level 3 unobservable inputs; transfers between levels are disclosed.

For non-financial assets, fair value reflects the asset's highest and best use from a market participant perspective, considering physically possible, legally permissible and financially feasible uses.

Notes must disclose significant judgements in applying accounting policies and the sources of estimation uncertainty with sensitivity information.

IFRS 15 five steps: identify the contract with the customer, identify the performance obligations, determine the transaction price, allocate the price to the obligations, and recognise revenue when each obligation is satisfied.

Variable consideration is estimated using the expected value or most likely amount and is constrained to the amount for which it is highly probable that a significant reversal will not occur.

Revenue is recognised over time when the customer controls the asset as it is created, the entity's performance enhances a customer-controlled asset, or the asset has no alternative use and there is an enforceable right to payment for performance to date; otherwise at a point in time.

Inventory is measured at the lower of cost and net realisable value; permitted cost formulas are specific identification, FIFO and weighted average, while LIFO is prohibited.

Property, plant and equipment cost includes purchase price, directly attributable costs and the initial estimate of dismantling and restoration obligations; subsequent measurement uses the cost model or revaluation model.

Under the revaluation model, an increase is recognised in OCI as a revaluation surplus unless it reverses a previous expense; a decrease is expensed unless it reverses a previous surplus for the same asset.

Depreciation uses the component approach, begins when the asset is available for use, continues until derecognition even if idle, and residual value, useful life and method are reviewed at least annually.

Internally generated brands, mastheads, customer lists and goodwill are not recognised; research is expensed and development is capitalised only if all IAS 38 criteria are met.

Recoverable amount is the higher of fair value less costs of disposal and value in use; goodwill and indefinite-life intangibles are tested annually, and impairment reversals are not permitted for goodwill.

A provision is recognised when a present legal or constructive obligation arises from a past event, an outflow of resources is probable, and the amount can be reliably estimated.

Provisions are measured at the best estimate of the expenditure required to settle the obligation, discounted where the effect of the time value of money is material, and reviewed at each reporting date.

A contingent liability is not recognised but disclosed unless the possibility of outflow is remote; a contingent asset is not recognised and is disclosed only when an inflow is probable.

For an onerous contract the provision equals the present obligation net of expected benefits, measured at the lower of the cost of fulfilling the contract and the compensation or penalty arising from failure to fulfil it.

Under IFRS 16 a lessee recognises a right-of-use asset and a lease liability measured at the present value of unpaid lease payments, discounted at the rate implicit in the lease or the incremental borrowing rate.

The lease term comprises the non-cancellable period plus periods covered by extension options the lessee is reasonably certain to exercise and periods covered by termination options it is reasonably certain not to exercise.

Lessees may elect not to recognise short-term leases (twelve months or less, no purchase option) or leases of low-value assets, expensing payments on a straight-line or other systematic basis.

For defined benefit plans, current and past service cost and net interest on the net defined benefit liability are recognised in profit or loss, while remeasurements are recognised in OCI and never reclassified.

IFRS 9 classifies debt instruments at amortised cost when the business model is hold-to-collect and cash flows are solely payments of principal and interest, at FVOCI when hold-to-collect-and-sell, and at FVTPL otherwise; expected credit losses apply to amortised cost and FVOCI debt.

The acquisition method requires identifying the acquirer, determining the acquisition date, recognising and measuring identifiable assets acquired and liabilities assumed at fair value, and recognising goodwill or a gain.

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

Non-controlling interest is measured either at fair value (full goodwill) or at the proportionate share of the acquiree's identifiable net assets (partial goodwill), on a transaction-by-transaction basis.

Acquisition-related costs are expensed as incurred; contingent consideration is measured at fair value at the acquisition date and subsequently at fair value through profit or loss.

Control under IFRS 10 exists when the investor has power over the relevant activities, exposure or rights to variable returns, and the ability to use its power to affect those returns.

Consolidation combines like items of assets, liabilities, income and expenses, eliminates intragroup balances and transactions, applies uniform accounting policies, and presents non-controlling interest within equity.

Equity comprises share capital, share premium, retained earnings and accumulated other comprehensive income; treasury shares are deducted from equity and gains or losses on their sale are not recognised in profit or loss.

Basic earnings per share = profit or loss attributable to ordinary shareholders of the parent divided by the weighted average number of ordinary shares outstanding during the period.

IAS 10 distinguishes adjusting events, which provide evidence of conditions existing at the reporting date and require adjustment, from non-adjusting events, which are disclosed only if material; IAS 24 and IFRS 8 add related party and segment disclosures.