Financial Reporting and Assurance
What the exam tests
Financial Reporting and Assurance in the ICAN Professional Case Study asks you to convert case facts into IFRS-compliant numbers, then judge audit risk, materiality and evidence. You may need adjusting journals, disclosure notes, or a memo on an accounting policy.
Core rules
- IFRS 15: identify the contract, performance obligations, transaction price, allocate, recognise when control passes. Variable consideration is constrained.
- IFRS 16: lessees recognise a lease liability at the present value of lease payments and a right-of-use asset; subsequently depreciation plus interest.
- IAS 36: test assets for impairment when indicators exist; recoverable amount is higher of fair value less costs of disposal and value in use.
- IAS 37: recognise a provision only for a present obligation from a past event, probable outflow and reliable estimate.
- Audit: ISA 315 risk assessment, ISA 330 responses, ISA 700 reporting; materiality is a matter of professional judgment, not a fixed percentage.
Worked example
A company leases equipment for five years at ₦12m per year, payable in arrears. Incremental borrowing rate is 10%; five-year annuity factor is 3.7908. Lease liability = ₦12m × 3.7908 = ₦45.49m. Recognise a right-of-use asset and lease liability of ₦45.49m. Year 1 depreciation = ₦45.49m ÷ 5 = ₦9.10m; interest = ₦45.49m × 10% = ₦4.55m; total expense ₦13.65m, not the ₦12m cash paid. EBITDA rises because rent is replaced by depreciation and interest, but debt and covenant metrics worsen. Reason: IFRS 16 reflects the financing substance.
Traps
Expensing lease rentals; using undiscounted payments; forgetting deferred tax on the right-of-use asset/liability; treating a probable penalty as a provision without a present obligation; and calling an item material merely because it is large in amount.