ICAN Professional Case Study cheat sheet

IFRS recognition criteria: an item is recognised when it meets the definition of an element and can be measured reliably; probability of future economic benefit is assessed for assets and liabilities.

Revenue under IFRS 15: apply the five-step model - identify contract, identify performance obligations, determine transaction price, allocate price to obligations, recognise revenue when (or as) each obligation is satisfied.

Lease accounting under IFRS 16: lessee recognises a right-of-use asset and a lease liability at the present value of lease payments; short-term and low-value leases are exempt.

Impairment under IAS 36: compare carrying amount with recoverable amount (higher of fair value less costs of disposal and value in use); recognise loss immediately in profit or loss unless revaluation model applies.

Audit opinion types: unmodified, qualified (material but not pervasive), adverse (material and pervasive), disclaimer (inability to obtain sufficient appropriate evidence, material and pervasive).

Materiality: misstatements are material if they could influence economic decisions of users; performance materiality is set below overall materiality to reduce the probability that uncorrected misstatements exceed materiality.

Going concern: management assesses at least 12 months from reporting date; auditor evaluates adequacy and considers whether a material uncertainty exists requiring disclosure.

Consolidation: control exists when investor has power over investee, exposure to variable returns, and ability to use power to affect returns; intra-group balances and transactions are eliminated in full.

Weighted average cost of capital (WACC) = (E/V) × Re + (D/V) × Rd × (1 − tax rate), where V = E + D; use market values where available.

Capital asset pricing model (CAPM): Re = Rf + β × (Rm − Rf); beta measures systematic risk; unsystematic risk is diversifiable and not priced.

Net present value (NPV) = present value of cash inflows minus present value of cash outflows; accept project if NPV > 0; NPV is preferred to IRR for mutually exclusive projects.

Internal rate of return (IRR): discount rate at which NPV = 0; accept if IRR > cost of capital; IRR can give multiple solutions with non-conventional cash flows.

Working capital cycle = inventory days + receivable days − payable days; a shorter cycle reduces financing needs.

Treasury risk: transaction exposure (foreign currency cash flows), translation exposure (consolidation of foreign subsidiaries), economic exposure (effect of rate changes on future competitiveness).

Interest rate parity: forward premium or discount approximates the interest rate differential between two currencies; covered interest arbitrage enforces parity.

Dividend policy: Modigliani–Miller (no taxes, perfect markets) holds dividend policy irrelevant; in practice, taxes, signaling, agency costs, and clientele effects matter.

Taxable income = accounting profit before tax adjusted for permanent differences (non-deductible expenses, non-taxable income) and temporary differences (timing differences).

Deferred tax: recognise on temporary differences using the liability method; deferred tax asset recognised only to the extent that future taxable profit is probable.

Capital allowances: tax depreciation replaces accounting depreciation; balancing charge or allowance arises on disposal when proceeds differ from tax written-down value.

Transfer pricing: arm's length principle requires related-party transactions to be priced as if between independent parties; OECD guidelines endorse five methods (CUP, resale price, cost plus, TNMM, profit split).

Tax avoidance vs evasion: avoidance is legal use of tax law to reduce liability; evasion is illegal (e.g., concealment, false declarations) and attracts penalties and criminal liability.

Withholding tax: deducted at source on payments such as dividends, interest, and royalties to non-residents; double tax treaties reduce or eliminate withholding rates.

Tax planning timing: deferring income and accelerating deductions reduces present value of tax; however, anti-avoidance rules (GAAR) may challenge arrangements lacking commercial substance.

Value added tax (VAT): output tax minus input tax; businesses act as collection agents; zero-rated supplies allow input recovery, exempt supplies do not.

Porter's five forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, intensity of rivalry; use to assess industry attractiveness.

SWOT analysis: internal strengths and weaknesses, external opportunities and threats; pair internal and external factors to generate strategic options (SO, ST, WO, WT).

Corporate governance: separation of ownership and control creates agency problems; board independence, audit committee, and disclosure reduce agency costs.

COSO ERM framework: governance and culture, strategy and objective-setting, performance, review and revision, information, communication and reporting - five components, twenty principles.

Risk response options: avoid, reduce (mitigate), transfer (insurance, hedging), accept; select based on risk appetite and cost-benefit.

Balanced scorecard perspectives: financial, customer, internal business process, learning and growth; lagging and leading indicators linked to strategy.

Stakeholder theory vs shareholder theory: shareholder primacy maximises shareholder wealth within legal and ethical bounds; stakeholder theory considers employees, customers, communities, and environment.

Three lines model: first line owns and manages risk; second line provides oversight and compliance; third line (internal audit) provides independent assurance.

Ethical decision framework: identify facts, stakeholders, ethical issues, available options, consequences, and duties/rights; document rationale.

ICAN Code of Ethics fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.

Threats to independence: self-interest, self-review, advocacy, familiarity, intimidation; apply safeguards or decline the engagement if threats cannot be reduced to acceptable level.

Conflict of interest: disclose to all affected parties and obtain consent, or withdraw from the engagement; do not use confidential information for personal advantage.

Whistleblowing: internal escalation first (line manager, audit committee); external reporting permitted where internal channels fail or where required by law.

Gifts and hospitality: accept only if trivial and inconsequential; otherwise decline or disclose; a gift that could influence judgement is a bribery risk.

Professional scepticism: question information, corroborate evidence, and remain alert to indicators of fraud or error; do not accept management representations without corroboration.

Ethical culture: tone at the top, code of conduct, training, and whistleblowing channels reduce fraud risk; ethics is not merely legal compliance.

Continuing professional development (CPD): ICAN members must undertake and record CPD annually; non-compliance can lead to sanctions.

Practice licensing: audit and insolvency work require specific licences and compliance with regulatory bodies (e.g., FRCN, SEC, NDIC where applicable).

Money laundering: customer due diligence (CDD), record-keeping, suspicious transaction reporting to the Financial Intelligence Unit; tipping-off is prohibited.

Anti-bribery: UK Bribery Act and similar laws have extraterritorial reach; adequate procedures defence requires risk assessment, due diligence, and top-level commitment.

Data protection: process personal data lawfully, obtain consent where required, keep secure, and report breaches to the regulator within prescribed timeframes.

Professional indemnity insurance: required for practising firms; covers negligence claims; does not cover fraud or deliberate wrongdoing.

Regulatory inspections: cooperate fully, provide accurate information, and remediate deficiencies; obstruction or misrepresentation is a disciplinary offence.

Sanctions: disciplinary actions include caution, fine, suspension, and expulsion; criminal offences may also apply for fraud, bribery, or money laundering.

Ratio analysis categories: profitability (gross margin, net margin, ROCE), liquidity (current ratio, quick ratio), efficiency (inventory turnover, receivable days), gearing (debt/equity, interest cover).

DuPont analysis: return on equity = net profit margin × asset turnover × equity multiplier; decomposes performance into profitability, efficiency, and leverage.

Free cash flow = operating cash flow − capital expenditure; use for valuation and debt service capacity; distinguish from accounting profit.

Quality of earnings: compare cash flow from operations with profit; persistent positive accruals gap may indicate aggressive revenue recognition or weak cash conversion.

Segment reporting: analyse by business segment and geography; identify growth drivers and margin differences; consider common costs allocation.

Sensitivity analysis: vary key assumptions (sales growth, margins, discount rate) to test valuation or covenant headroom; scenario analysis combines multiple changes.

Covenant analysis: calculate headroom against debt covenants (e.g., net debt/EBITDA, interest cover); breach can trigger acceleration or penalty pricing.

Integrated reporting: six capitals (financial, manufactured, intellectual, human, social and relationship, natural); connects strategy, governance, performance, and prospects.

Decision support: define the problem, identify objectives, generate options, evaluate against criteria, select, implement, and review; document assumptions.

Relevant costs: differential future cash flows; ignore sunk costs, allocated fixed costs, and non-cash items unless they affect future cash flows.

Break-even point (units) = fixed costs / contribution per unit; contribution per unit = selling price − variable cost per unit; margin of safety = (budgeted sales − break-even sales) / budgeted sales.

Make-or-buy: compare avoidable costs of making with purchase price plus any additional fixed costs; qualitative factors include quality control and supplier reliability.

Communication with stakeholders: tailor content and format to audience (board, regulators, investors); use clear structure, accurate figures, and balanced tone.

Board reporting: present executive summary, key metrics, risks, and recommendations; avoid jargon; distinguish facts from estimates.

Negotiation and influence: prepare BATNA (best alternative to a negotiated agreement), understand interests, and create value before claiming value.

Written advice: state scope, basis, assumptions, limitations, and conclusion; distinguish professional opinion from guarantee; retain documentation.