ICAEW ACA FAR cheat sheet

Statement of cash flows (IAS 7): classify as operating, investing or financing; interest paid and interest/dividends received may be operating or, if consistently applied, financing/investing; non-cash transactions are excluded and disclosed separately.

Cash equivalents: short-term, highly liquid investments with original maturity of three months or less and insignificant risk of value change; bank overdrafts repayable on demand form part of cash and cash equivalents only where they are integral to cash management.

Revenue recognition (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).

Transaction price includes variable consideration estimated using expected value or most likely amount, constrained to the amount for which a significant revenue reversal is not highly probable; significant financing component is adjusted where payment timing exceeds roughly one year.

Statement of financial position presentation (IAS 1): current/non-current split unless a liquidity presentation is more relevant; an asset is current if realised in the normal operating cycle, held for trading, realised within 12 months, or is cash/cash equivalents without restriction.

Depreciation: allocate depreciable amount (cost less residual value) over useful life; method reflects consumption of benefits; residual value and useful life are reviewed at least annually and changes are prospective (IAS 8).

Inventory (IAS 2): measured at the lower of cost and net realisable value; cost excludes abnormal waste, storage costs (unless necessary in the production process) and selling costs; cost formulas are FIFO or weighted average - LIFO is prohibited.

Provisions (IAS 37): recognise where a present obligation from a past event is probable (more likely than not) and can be reliably estimated; measure at best estimate, discounting where the time value of money is material; contingent liabilities are disclosed, not recognised.

Interpretation: gross profit margin = gross profit/revenue; operating margin = operating profit/revenue; ROCE = operating profit/(total equity + non-current liabilities); asset turnover = revenue/total assets; current ratio = current assets/current liabilities; gearing = debt/(debt + equity) or debt/equity, stating the basis used.

Conceptual Framework (2018): objective is to provide financial information useful to existing and potential investors, lenders and other creditors in making decisions about providing resources; qualitative characteristics are relevance and faithful representation (fundamental) and comparability, verifiability, timeliness and understandability (enhancing).

Elements: asset = present economic resource controlled as a result of past events; liability = present obligation to transfer an economic resource as a result of past events; equity = residual interest; income/expenses = changes in assets/liabilities other than contributions from or distributions to holders.

Recognition requires relevance and faithful representation; measurement bases include historical cost and current value (fair value, value in use/fulfilment value, current cost); no single basis is prescribed.

IFRS 13 fair value: exit price in an orderly transaction between market participants at the measurement date; hierarchy Level 1 quoted prices in active markets, Level 2 observable inputs, Level 3 unobservable inputs; highest and best use for non-financial assets.

IAS 16 property, plant and equipment: cost model or revaluation model (class-by-class); revaluation surplus to OCI and accumulated in equity, excess of revaluation loss over prior surplus to profit or loss; depreciation continues on revalued carrying amount.

IFRS 16 leases: lessee recognises a right-of-use asset and lease liability at present value of lease payments; short-term (12 months or less) and low-value asset exemptions permitted; lessor classifies as finance lease (transfers substantially all risks and rewards) or operating lease.

IAS 38 intangibles: recognise only if probable future economic benefits and cost can be measured reliably; internally generated goodwill, brands and customer lists are not recognised; research is expensed, development capitalised once technical and commercial feasibility criteria are met.

IAS 12 deferred tax: temporary differences between carrying amount and tax base; recognise deferred tax liabilities on taxable temporary differences and deferred tax assets where taxable profit is probable; measured at tax rates expected to apply when the asset is realised or liability settled.

IAS 10 events after the reporting period: adjusting events provide evidence of conditions at the reporting date and adjust the financial statements; non-adjusting events are disclosed if material; dividends declared after the reporting date are non-adjusting.

IFRS 10 control: investor controls an investee where it has power over relevant activities, exposure to variable returns, and the ability to use its power to affect those returns; control, not shareholding percentage, determines consolidation.

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; acquisition-related costs are expensed.

Goodwill (full or partial NCI method): consideration transferred plus NCI plus fair value of previously held interest, less net fair value of identifiable net assets; bargain purchase gain is recognised in profit or loss after reassessment.

Non-controlling interest at acquisition: measured either at fair value (full goodwill method) or at the proportionate share of identifiable net assets (partial goodwill); the choice is available for each business combination.

Consolidation adjustments: eliminate parent's investment against equity, eliminate intra-group balances, transactions, income and expenses in full, and eliminate unrealised profit in inventory (upstream profits split by ownership; downstream profits attributed to the parent).

Group retained earnings = parent's retained earnings plus parent's share of post-acquisition retained earnings of subsidiaries (adjusted for fair value depreciation and unrealised profits) less goodwill impairment attributable to the parent.

Associates and joint ventures (IAS 28): significant influence presumed at 20% or more; equity method - carrying amount increased by share of profit, reduced by dividends and impairment; joint arrangements classified as joint operations or joint ventures.

Consolidated statement of financial position: combine line by line, adjust to uniform accounting policies and reporting dates (difference not exceeding three months), add goodwill as a non-current asset, and present NCI within equity separately from owners of the parent.

Consolidated statement of cash flows: include 100% of subsidiary cash flows; dividends paid to NCI are financing cash flows; acquisition/disposal cash flows are shown net of cash acquired or disposed, with only the post-acquisition result included in group profit.

Profitability: ROCE = operating profit/(equity + non-current liabilities); return on equity = profit attributable to ordinary shareholders/equity attributable to ordinary shareholders; gross margin and operating margin are analysed by trend and peer comparison.

Efficiency: inventory days = inventory/cost of sales x 365; receivable days = trade receivables/revenue x 365; payable days = trade payables/cost of sales x 365; working capital cycle = inventory days + receivable days - payable days.

Liquidity: current ratio = current assets/current liabilities; quick ratio = (current assets - inventory)/current liabilities; cash conversion and operating cash flow to debt assess quality of earnings.

Gearing and solvency: gearing = debt/(debt + equity) or debt/equity; interest cover = operating profit/finance cost; net debt = borrowings less cash and cash equivalents; state the definition used because comparability depends on it.

Investor ratios: EPS = profit attributable to ordinary shareholders/weighted average number of ordinary shares; P/E = market price per share/EPS; dividend cover = profit/dividends; dividend yield = dividend per share/market price per share.

Limitations of ratio analysis: differing accounting policies (depreciation, inventory cost formula, capitalised development), creative accounting and window dressing, inflation, one-off items, and absence of a single benchmark - ratios need comparatives and industry context.

DuPont decomposition: ROCE = operating margin x asset turnover, where asset turnover = revenue/(equity + non-current liabilities); this isolates whether return is driven by margin or by asset utilisation.

Operating leases and gearing: under IFRS 16 lease liabilities increase reported debt and reduce gearing headroom, and add back depreciation and interest in EBIT-based coverage; analysts may adjust for short-term and low-value exemptions.

Segment and non-financial analysis: IFRS 8 operating segments are reported on the basis used internally by the chief operating decision maker; segment margins, revenue concentration and forward-looking disclosures supplement ratio analysis.