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EPSO Auditors study materials
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EPSO Auditors: Accounting and financial reporting

EPSO Auditors · Work through your exam, one topic at a time.

All guide sections

Accounting and financial reporting

The Accounting and financial reporting domain tests accrual-based reporting: the IASB conceptual framework, the IFRS standards most used in EU reporting, and the EU's own accrual accounting under the Financial Regulation. Expect recognition, measurement and disclosure questions, plus consolidation and the distinction between budgetary and accrual figures.

Framework and elements

  • Objective: information useful to investors and creditors; fundamental characteristics are relevance (with materiality) and faithful representation (complete, neutral, free from error), enhanced by comparability, verifiability, timeliness and understandability.
  • Asset: present economic resource controlled from a past event. Liability: present obligation to transfer a resource. Equity is the residual.
  • Measurement bases: historical cost, fair value (IFRS 13 hierarchy - Level 1 quoted prices, Level 2 observable inputs, Level 3 unobservable), amortised cost, value in use.

Standards that carry marks

  • IAS 16: component depreciation; review useful life and residual value at least annually.
  • IAS 36: recoverable amount = higher of fair value less costs of disposal and value in use. Goodwill and indefinite-life intangibles are tested annually.
  • IAS 37: recognise a provision when there is a present obligation, a probable outflow (more likely than not) and a reliable estimate; contingent liabilities are disclosed, contingent assets only when virtually certain.
  • IFRS 15: identify the contract, identify performance obligations, determine and allocate the transaction price, recognise revenue on satisfaction.
  • IFRS 16: the lessee recognises a right-of-use asset and a lease liability at present value.
  • IFRS 10: control = power over relevant activities, exposure to variable returns, ability to use power to affect returns.
  • EU layer: IAS Regulation 1606/2002 and endorsement; the Financial Regulation requires accrual-based EU accounts, reconciling budgetary outturn with economic outturn.

Worked example

A machine has carrying amount €500,000, fair value less costs of disposal €430,000 and value in use €460,000. Recoverable amount is the higher, €460,000, so the impairment loss is €40,000 (Dr impairment loss, Cr accumulated impairment). The €430,000 figure is irrelevant once value in use is higher. A later reversal is permitted for this asset but never for goodwill.

Traps

  • Using the lower of the two IAS 36 measures.
  • Recognising a contingent asset, or a provision where outflow is only possible.
  • Capitalising research costs; only development meeting feasibility criteria qualifies.
  • Discounting too little for long-term provisions.
  • Confusing budget implementation with the economic outturn.
  • Netting assets against liabilities.