Financial statements
a. Balance sheet
b. Income statement
c. Statement of changes in equity
d. Statement of cash flows
e. Consolidated statements
f. Integrated reporting
Part 1 – Section A.1. Financial statements
For the balance sheet, income statement, statement of changes in equity, and the statement of cash flows, the candidate should be able to:
- a. identify the users of these financial statements and their needs
- b. demonstrate an understanding of the purposes and uses of each statement
- c. identify the major components and classifications of each statement
- d. identify the limitations of each financial statement
- e. identify how various financial transactions affect the elements of each of the financial statements and determine the proper classification of a given transaction
- f. demonstrate an understanding of the relationship among the financial statements
- g. demonstrate an understanding of how a balance sheet, an income statement, a statement of changes in equity, and a statement of cash flows (indirect method) are prepared
With respect to consolidated financial statements prepared under U.S. GAAP, the candidate should be able to:
- h. define consolidated financial statements
- i. define the two types of consolidation models: variable interest entity model and voting interest model
- j. demonstrate an understanding of the three types of consolidation accounting: full consolidation, proportionate consolidation, and equity consolidation
- k. demonstrate an understanding of intracompany balances and transactions that should be eliminated in consolidation
With respect to integrated reporting, the candidate should be able to:
- l. define integrated reporting, integrated thinking, and the integrated report, and demonstrate an understanding of the relationship among them
- m. identify the primary purpose of integrated reporting
- n. explain the fundamental concepts of value creation, the six capitals, and the value creation process
- o. identify elements of an integrated report (i.e., organizational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook, and basis of preparation and presentation)
- p. identify and explain the benefits and challenges of adopting integrated reporting
Part 1 – Section A.2. Recognition, measurement, and valuation
The candidate should be able to:
Asset valuation
- a. identify issues related to the valuation of accounts receivable, including timing of recognition and estimation of the allowance for credit losses
- b. distinguish between receivables sold (factoring) on a with-recourse basis and those sold on a without-recourse basis, and determine the effect on the balance sheet
- c. identify issues in inventory valuation, including which goods to include, what costs to include, and which cost assumption to use
- d. identify and compare cost flow assumptions used in accounting for inventories
- e. demonstrate an understanding of the lower of cost or market rule for LIFO and the retail inventory method, and the lower of cost and net realizable value rule for all other inventory methods
- f. calculate the effect on income and on assets of using different inventory methods
- g. analyze the effects of inventory errors
- h. identify advantages and disadvantages of the different inventory methods
- i. recommend the inventory method and cost flow assumption that should be used for a company given a set of facts
- j. demonstrate an understanding of the following debt security types: trading, available-for-sale, and held-to-maturity
- k. demonstrate an understanding of the valuation of debt and equity securities
- l. determine the effect on the financial statements of using different depreciation methods
- m. recommend a depreciation method for a given set of data
- n. demonstrate an understanding of the accounting for impairment of long-term assets and intangible assets, including goodwill
Valuation of liabilities
- o. identify the classification issues of short-term debt expected to be refinanced
- p. compare the effect on financial statements when using either the assurance warranty approach or the service warranty approach for accounting for warranties
Income taxes (applies to Assets and Liabilities subtopics)
- q. demonstrate an understanding of interperiod tax allocation/deferred income taxes
- r. distinguish between deferred tax liabilities and deferred tax assets
- s. differentiate between temporary differences and permanent differences, and identify examples of each
Leases (applies to Assets and Liabilities subtopics)
- t. distinguish between operating and finance leases
- u. recognize the correct financial statement presentation of operating and finance leases
Equity transactions
- v. identify transactions that affect paid-in capital and those that affect retained earnings
- w. determine the effect on shareholders’ equity of large and small stock dividends, and stock splits
Revenue recognition
- x. apply revenue recognition principles to various types of transactions
- y. demonstrate an understanding of revenue recognition for contracts with customers using the steps required to recognize revenue
- z. demonstrate an understanding of the matching principle with respect to revenues and expenses, and be able to apply it to a specific situation
Income measurement
- aa. define gains and losses, and indicate the proper financial statement presentation for gains and losses
- bb. demonstrate an understanding of the treatment of gain or loss on the disposal of fixed assets
- cc. demonstrate an understanding of expense recognition practices
- dd. define and calculate comprehensive income
- ee. identify the correct treatment of discontinued operations
GAAP – IFRS differences
Major differences in reported financial results when using GAAP vs. IFRS and the impact on analysis
- ff. identify and describe the following differences between U.S. GAAP and IFRS: (i) expense recognition, with respect to share-based payments and employee benefits; (ii) intangible assets, with respect to development costs and revaluation; (iii) inventories, with respect to costing methods, valuation, and write-downs (e.g., LIFO); (iv) leases, with respect to lessee operating and finance leases; (v) long-lived assets, with respect to revaluation, depreciation, and capitalization of borrowing costs; and (vi) impairment of assets, with respect to determination, calculation, and reversal of loss