Intermediate Level: Standards, Decisions and Assurance
What to master
Intermediate level joins mechanics to standards and decision-making. Financial Accounting and Reporting covers IAS/IFRS recognition and measurement - IAS 16 property, plant and equipment, IAS 2 inventories, IAS 38 intangibles, IFRS 15 revenue, IAS 37 provisions, deferred tax under IAS 12 - and preparation of company financial statements. Management Accounting covers cost classification, job and process costing, CVP analysis, limiting factors, budgeting and basic variance analysis. Macroeconomics covers national income, inflation, unemployment, fiscal and monetary policy, and the balance of payments. Auditing and Assurance covers the audit risk model, materiality, assertions, evidence, internal controls and audit reports. Taxation covers taxable-income adjustments, capital allowances and VAT mechanics. Company Law covers share capital, directors’ duties, meetings and insolvency.
Traps
- Charging depreciation on revalued assets using historical cost.
- Treating a decrease in inventory as a cash inflow without checking the closing balance.
- Applying the higher of cost and net realisable value under IAS 2 - it is the lower.
- Mixing price and quantity variances, or using actual instead of standard hours.
- Confusing audit evidence with audit procedure: inquiry is a procedure, not evidence.
- Deducting non-deductible expenses or forgetting capital allowances in tax computations.
Worked rule of thumb - materiality
A common benchmark is 5% of profit before tax or 1% of total assets. If profit before tax is KES 4 million, planning materiality is approximately KES 200,000. Misstatements above that are likely material; below it, assess qualitatively. Always state the benchmark and rationale.