Financial Accounting – International Accounting Standards (IFAI) - (Pre-requisite FAFN) -

Syllabus overview

This syllabus deals with the financial statements of a non-group enterprise and aims to build upon Financial Accounting Fundamentals and Business Law at Foundation Level. Although the emphasis in this syllabus is on accounting techniques, students will be expected to understand the basic principles of accounting theory, including the IASC's Framework for the Preparation and Presentation of Financial Statements (the Framework). Students will be required to elect to answer in terms of IASs in so far as they affect topics in the syllabus. It should also be noted that certain concepts draw upon terms seen in the wider accounting literature and not just those found in IASs.

Where financial statements are required in a form for publication it is expected that the layout and presentation will follow that seen in the relevant IAS: for example, IAS 1 for an income statement and a balance sheet and IAS 7 for cash flow statements. In some cases, IASs permit two accounting treatments for like transactions and events. In this paper it is expected that answers will be produced using the benchmark treatment, and only knowledge of an alternative treatment is required. With regard to external audit the reference point will be the International Standard on Auditing (ISA) 700, The Auditors’ Report on Financial Statements.

This syllabus aims to test the student's ability to:

• explain and evaluate the regulatory framework governing the preparation of financial statements and corporate reports;
• prepare financial statements for non-group enterprises;
• identify and apply the correct treatment for transactions in accordance with International Accounting Standards (IASs);
• analyse the position and performance disclosed by the financial statements of a non-group enterprise.

There will be a written paper of three hours. There will be two sections: Section A will be compulsory for 60% of the marks, and Section B will offer a choice of two from four questions for 40% of the marks.

On completion of their studies students should be able to:

• explain the elements of the regulatory framework within which published financial statements are produced;
• explain the role and structure of the IASC and its relationship to the International Organisation of Securities Commissions (IOSCO) and local regulatory bodies;
• explain the process leading to the promulgation of a standard practice;
• evaluate the relationship of the Framework for the Preparation and Presentation of Financial Statements to the standard-setting process;
• explain the role of the external auditor;
• explain the elements of the audit report and the ‘qualifications’ of that report.

• The regulatory framework within which published financial statements are produced.
• The role and structure of the IASC, its committees (including the Standing Interpretations Committee (SIC)) and the relationship to IOSCO and to local regulatory authorities.
• The process leading to the promulgation of a standard practice.
• The powers and duties of the external auditors; the audit report and its qualification for accounting statements not in accordance with best practice.

On completion of their studies students should be able to:

• explain the relevant regulatory requirements;
• prepare financial statements in a form suitable for publication, with appropriate notes;
• prepare a cash-flow statement in a form suitable for publication;
• explain and apply the relevant rules for reporting performance;
• explain and apply the rules for the disclosure of related parties to a business;
• explain and apply the rules governing share capital transactions.

• The IASC’s Framework for the Preparation and Presentation of Financial Statements.
• Preparation of the financial statements of non-group enterprises; the regulatory requirements for published financial statements (IAS 1).
• The preparation of cash-flow statements (IAS 7).
• Reporting performance; the measurement of income, extraordinary items, prior-period items, statement of changes in equity (IAS 1 + 8 + 35). Segmental reporting (IAS 14).
• The treatment in an enterprise’s financial statements of shares, debentures, dividends and interest; the recognition of revenue (IAS 18), the distribution of profit and the maintenance of capital.
• The disclosure of related parties to a business (IAS 24).
• The issue and redemption of shares, the share premium account, accounting for maintenance of capital arising from the purchase by a company of its own shares.

On completion of their studies students should be able to:

• explain the accounting rules contained in IASs which provide guidance as to the appropriate treatment of certain transactions;
• identify, apply and evaluate the accounting treatment of significant transactions.

• Property, plant and equipment (IAS 4 +16 + 36) – the calculation of depreciation and the effect of revaluations, changes to economic useful life, impairment in value, repairs, improvements and disposals. (Note: for IAS 36 no value-in-use calculations are required, only a knowledge of basic principle’s.)
• Investment properties (IAS 25).
• Research and development costs (IAS 9) – arguments for and against capitalisation and the criteria to be met before development expenditure should be capitalised.
• Inventories and construction contracts (IAS 2 + 11), to cover determination of cost, net realisable value (NRV), the inclusion of overheads and the measurement of profit on uncompleted contracts.
• Tax in financial accounts and government grants (IAS 12 + 20), and deferred taxation (IAS 12).
• Pensions (IAS 19) – defined benefit plans and defined contribution plans, actuarial deficits and surpluses.
• Contingencies and events occurring after the balance sheet date (IAS 10), provisions, contingent liabilities and contingent assets (IAS 37).
• Leases (IAS 17) – operating leases and finance leases in the books of the lessor and lessee.
• Earnings per share (IAS 33), to include the effect of bonus issues, rights issues and convertible stock.

On completion of their studies students should be able to:

• calculate a full range of accounting ratios;
• analyse financial statements to comment on performance and position;
• explain the limitations of accounting ratio analysis.

• The analysis of financial statements to interpret the position and performance of a business.
• The application of ratio analysis to financial statements and its limitations.