CPA Advanced Financial Accounting cheat sheet

IAS 1 requires fair presentation, going concern, accrual basis, materiality and aggregation, and no offsetting; a complete set comprises a statement of financial position, a statement of profit or loss and OCI, a statement of changes in equity, a statement of cash flows and notes, with comparatives.

Current/non-current classification: an asset is current if it is realised in the normal operating cycle, held primarily for trading, due within 12 months, or is unrestricted cash or a cash equivalent; otherwise it is non-current. A liquidity presentation is used when it is more relevant and reliable.

IAS 8: changes in accounting policy are applied retrospectively by restating comparatives and opening retained earnings unless impracticable; changes in accounting estimates are applied prospectively; prior period errors are corrected by restatement.

IAS 10: adjusting events provide evidence of conditions existing at period end (for example, impairment evidence or settlement of a court case); non-adjusting events (for example, dividends declared after year end or a business combination) are disclosed if material.

IAS 16: cost or revaluation model applied consistently by class; component depreciation; residual value and useful life reviewed at least annually; revaluation increases go to OCI and accumulated revaluation surplus, while decreases are expensed unless they reverse a prior surplus for the same asset.

IAS 36: recoverable amount is the higher of fair value less costs of disposal and value in use; an impairment loss is allocated first to goodwill and then pro rata to other CGU assets; goodwill impairment is never reversed.

IAS 2: inventory is measured at the lower of cost and net realisable value; FIFO or weighted average cost is permitted and LIFO is prohibited; fixed production overheads are allocated on the basis of normal capacity.

IAS 7: cash equivalents are short-term, highly liquid investments with original maturities of three months or less; interest and dividends paid or received are classified consistently as operating, investing or financing and the policy is disclosed.

IFRS 10 control: power over relevant activities, exposure to variable returns, and the ability to use power to affect those returns; consolidate from the date control is obtained until the date it is lost.

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 or a gain from a bargain purchase.

Goodwill = consideration transferred + non-controlling interest + fair value of previously held interests − fair value of identifiable net assets acquired. Goodwill is not amortised but is tested annually for impairment.

Non-controlling interest at acquisition is measured either at fair value (full goodwill method) or at its proportionate share of the acquiree's identifiable net assets; the choice is made separately for each business combination.

Contingent consideration is measured at acquisition-date fair value and included in consideration transferred; subsequent changes arising from measurement-period adjustments adjust goodwill, while other changes are recognised in profit or loss or OCI.

Intra-group balances, income, expenses, dividends and unrealised profits are eliminated in full; tax effects of unrealised profits are recognised as deferred tax, and non-controlling interest is adjusted for its share of unrealised profits.

IAS 28 equity method: significant influence is presumed at 20% or more of voting rights; the investment is initially recognised at cost and adjusted for the investor's share of post-acquisition profit or loss and OCI, less impairment.

Step acquisition: on obtaining control, previously held interests are remeasured to acquisition-date fair value, with the resulting gain or loss recognised in profit or loss, and the remeasured amount forms part of the consideration.

Loss of control: derecognise the subsidiary's assets and liabilities at carrying amounts, remeasure any retained interest at fair value, and recognise the resulting gain or loss in profit or loss.

IFRS 9 classification of financial assets depends on the entity's business model (hold to collect, hold to collect and sell, or other) and on whether contractual cash flows are solely payments of principal and interest (SPPI).

Amortised cost applies when the hold-to-collect business model and SPPI criteria are met; transaction costs are included in the initial carrying amount and interest is recognised using the effective interest method.

FVOCI applies to debt instruments held to collect and sell that pass the SPPI test, with interest revenue and expected credit losses in profit or loss and other fair value changes in OCI; FVTPL applies to all other financial assets.

IFRS 9 expected credit loss: a 12-month allowance applies at initial recognition; lifetime expected credit losses apply once credit risk has increased significantly or the asset is credit-impaired; trade receivables may use the simplified provision matrix.

Financial liability modification: if the present value of cash flows under the new terms, including fees, differs by at least 10% from the original, the liability is extinguished and a new liability is recognised at fair value.

IFRS 9 hedge accounting requires formal designation and documentation, an economic relationship between hedged item and hedging instrument, and an effectiveness assessment; a hedge ratio may be rebalanced without discontinuing the hedge.

IFRS 2 equity-settled share-based payment: measure at grant-date fair value, recognise over the vesting period with a corresponding equity credit, and adjust cumulative expense for non-market vesting conditions such as service and performance targets.

Market vesting conditions, such as a target share price, are reflected in grant-date fair value and are not adjusted for subsequent non-achievement; non-market conditions are applied by revising the number of instruments expected to vest.

IFRS 2 cash-settled share-based payment: recognise a liability at fair value initially and remeasure it at each reporting date and at settlement date, with changes in fair value recognised in profit or loss.

IFRS 15 five steps: identify the contract, identify the performance obligations, determine the transaction price, allocate the transaction price to each obligation based on relative stand-alone selling prices, and recognise revenue when control transfers.

Variable consideration is estimated using the expected value or the most likely amount and is included in the transaction price only to the extent that a significant reversal is highly improbable when the uncertainty resolves.

Revenue is recognised over time when the performance obligation is satisfied continuously, using input or output methods that faithfully depict progress; costs incurred may not depict progress where they do not relate to performance.

A principal controls the specified good or service before transfer and recognises gross revenue; an agent arranges for another party to provide the good or service and recognises commission or net fee revenue.

IFRS 16 lessee: recognise a right-of-use asset and a lease liability at the present value of lease payments, discounted at the interest rate implicit in the lease or, if not readily determinable, the incremental borrowing rate.

Lease term includes periods covered by extension options reasonably certain to be exercised and excludes termination options reasonably certain to be exercised; it is reassessed when a significant event or change in circumstances occurs.

IFRS 16 lessor: a finance lease transfers substantially all risks and rewards and is accounted for as a receivable at the net investment in the lease; an operating lease continues to recognise the underlying asset and lease income on a straight-line basis.

Deferred tax: a deferred tax liability arises on taxable temporary differences, including asset revaluations and right-of-use assets, while a deferred tax asset is recognised on deductible differences and tax losses only to the extent that recovery is probable.

IAS 21: foreign currency transactions are translated at the spot rate at the transaction date; monetary items are retranslated at the closing rate with exchange differences in profit or loss, while non-monetary items measured at historical cost are not retranslated.

Objective: provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

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, applied as a matter of degree rather than as a hierarchy.

Asset definition (2018 Framework): a present economic resource controlled by the entity as a result of past events; a liability is a present obligation to transfer an economic resource as a result of past events.

Recognition: an item is recognised if recognising it, and the resulting information, is relevant and faithfully represents the item; existence uncertainty and low probability affect relevance, while measurement uncertainty affects faithful representation.

Measurement bases: historical cost, fair value, value in use (or fulfilment value for liabilities) and current cost; the Framework does not prescribe a single measurement basis for all items.

Prudence is the exercise of caution when making judgements under uncertainty; it supports neutrality and does not permit deliberate understatement of assets or overstatement of liabilities.

The Framework reintroduces stewardship, defines equity as the residual interest in assets after deducting liabilities, and specifies that derecognition occurs when an asset or liability no longer meets the definition.

The IFRS Foundation oversees the IASB, which issues IFRS; the IFRS Interpretations Committee issues IFRIC interpretations; the ISSB issues sustainability disclosure standards IFRS S1 and IFRS S2.

Standard setting follows due process: research, exposure draft, public comment, redeliberation and issue, with mandatory effective dates and transition provisions.

IAS 1 requires disclosure of judgements and key sources of estimation uncertainty; IFRS Practice Statement 2 provides guidance on materiality, and materiality is entity-specific.

IAS 33 basic EPS = profit attributable to ordinary shareholders ÷ weighted average number of ordinary shares; diluted EPS adjusts profit and the share count for all dilutive potential ordinary shares.

Ratio analysis: current ratio = current assets ÷ current liabilities; quick ratio excludes inventory; gearing = debt ÷ equity (or debt ÷ capital); interest cover = EBIT ÷ interest expense.

DuPont: ROE = net profit margin × total asset turnover × equity multiplier, where the equity multiplier is average total assets ÷ average equity.

Limitations of ratio analysis include differing accounting policies, historical cost, seasonality, window dressing and off-balance-sheet arrangements; comparability requires consistent definitions.

IFRS 13 fair value is an exit price at the measurement date, based on the highest and best use for non-financial assets; inputs are ranked in a three-level hierarchy with additional disclosures for Level 3.

IFRS 8 requires disclosure of segment profit or loss, assets and liabilities for reportable segments using the management approach; IFRS 5 covers non-current assets held for sale and discontinued operations.