Professional
Qualification - Managerial Level
Financial
Analysis
First examined in May 2005
Syllabus outline
The syllabus comprises:
Topic |
Study
weighting |
| A |
Group
Financial Statements |
35% |
| B |
The Measurement
of Income and Capital |
20% |
| C |
Analysis
and Interpretation of Financial Accounts |
35% |
| D |
Developments
in External Reporting |
10% |
Learning aims
Students should be able to:
- prepare consolidated accounts
and explain the accounting principles associated with this
area, such as changes part way through an accounting period
and in the merger method,
- appropriately employ relevant
accounting standards,
- evaluate a business entity’s
financial statements and provide analysis of performance,
- explain the problems of
profit measurement and alternative approaches to asset valuations,
- discuss and evaluate current
developments in external reporting.
Assessment strategy
There will be a written examination
paper of three hours, with the following sections.
- Section A - 20 marks
A variety of compulsory objective test questions, each worth
between 2 and 4 marks. Mini-scenarios may be given, to which
a group of questions relate.
- Section B – 30 marks
Three compulsory medium answer questions, each worth 10
marks. Short scenarios may be given, to which some or all
questions relate.
- Section C – 50 marks
Two questions, from a choice of three, each worth 25 marks.
Short scenarios may be given, to which questions relate.
Learning outcomes and syllabus
content
A - Group Financial Statements
- 35%
Learning outcomes
On completion of their studies
students should be able to:
- explain the conditions required
for an undertaking to be a subsidiary or an associate of
another company;
- explain and apply the rules
for the exclusion of subsidiaries from consolidation;
- prepare a consolidated income
statement, balance sheet and cash flow statement for a group
of companies;
- explain and apply the concepts
of fair value at the point of acquisition and impairment
of goodwill;
- identify the impact on group
financial statements when a subsidiary is acquired or disposed
of part way through an accounting period (to include the
effective date of acquisition and dividends out of pre-acquisition
profits) and where shareholdings, or control, are acquired
in stages;
- explain the concept of an
associate and a joint venture, and the principles of how
they are accounted for;
- explain the pooling of interests
method of consolidation;
- compare and contrast pooling
of interests, acquisition and equity methods of accounting;
- explain the principles of
accounting for a capital reconstruction scheme or a demerger;
- explain foreign currency
translation principles, including the difference between
the closing rate/net investment method and the historical
rate method;
- explain the correct treatment
for foreign loans financing foreign equity investments.
Syllabus content
- Relationships between investors
and investees, and the exclusion of subsidiaries from consolidation
with reference to dominant influence, participating interest,
management on a unified basis and significant influence.
- The preparation of consolidated
financial statements (including the group cash flow statement)
involving one or more subsidiaries, sub-subsidiaries and
associates, under the acquisition and pooling of interests
methods (IAS 7, 22 & 27).
- The treatment in consolidated
financial statements of minority interests, pre- and post-
acquisition reserves, goodwill (including its impairment),
fair value adjustments, intra-group transactions and dividends,
piece-meal and mid-year acquisitions, and disposals to include
sub-subsidiaries and mixed groups.
- The accounting treatment
of associates and joint ventures (IAS 28 & 31) using
the equity method and proportional consolidation method.
- The accounting entries for
mergers, demergers and capital reconstruction schemes.
- Foreign currency translation
(IAS 21) to include overseas transactions and investments
in overseas subsidiaries.
B - The Measurement of Income
and Capital - 20%
Learning outcomes
On completion of their studies
students should be able to:
- explain the problems of
profit measurement and alternative approaches to asset valuations;
- explain measures to reduce
distortion in financial statements when price levels change;
- discuss the principle of
substance over form applied to a range of transactions;
- discuss the possible treatments
of financial instruments in the issuer's accounts (i.e.
liabilities versus equity, and the implications for finance
costs);
- identify circumstances in
which amortised cost, fair value and hedge accounting are
appropriate for financial instruments, and explain the principles
of these accounting methods;
- discuss the recognition
and valuation issues concerned with pension schemes and
the treatment of actuarial deficits and surpluses.
Syllabus content
- The problems of profit measurement
and the effect of alternative approaches to asset valuation;
current cost and current purchasing power bases and the
real terms system; accounting for changing prices (IAS 15)
and hyper inflation (IAS 29).
- The principle of substance
over form (IAS 1) and its influence in dealing with transactions
such as sale and repurchase agreements, consignment stock,
debt factoring, securitised assets, loan transfers and public
and private sector financial collaboration.
- Financial instruments classified
as liabilities or shareholders funds and the allocation
of finance costs over the term of the borrowing (IAS 32
& 39).
- The measurement and disclosure
of financial instruments (IAS 39).
- Retirement benefits, including
pension schemes - defined benefit schemes and defined contribution
schemes, actuarial deficits and surpluses (IAS 19).
C - Analysis and Interpretation of
Financial Accounts - 35%
Learning outcomes
On completion of their studies
students should be able to:
- calculate and interpret
a full range of accounting ratios;
- analyse financial statements
(in the context of information provided in the accounts
and corporate report) to comment on performance and position;
- prepare a concise report
on the results of an analysis of financial statements;
- explain the limitations
of accounting ratio analysis and analysis based on financial
statements;
- prepare and interpret segmental
analysis, inter-firm and international comparisons.
Syllabus content
- Ratios in the areas of performance,
profitability, financial adaptability, liquidity, activity,
shareholder investment and financing, and their interpretation.
- Calculation of Earnings
per Share under IAS 33, to include the effect of bonus issues,
rights issues and convertible stock.
- Interpretation of financial
statements via the analysis of the accounts and corporate
reports.
- Reporting the results of
analysis.
- Limitations of ratio analysis
(e.g. comparability of businesses and accounting policies).
- The identification of information
required to assess financial performance and the extent
to which financial statements fail to provide such information.
- Segment analysis: inter-firm
and international comparison (IAS 14).
- Interpretation of financial
obligations included in financial accounts (e.g. redeemable
debt, earn-out arrangements, contingent liabilities).
- The effect of short-term
debt on the measurement of gearing.
- The need to be aware of
aggressive or unusual accounting policies (“creative accounting”),
(e.g. in the areas of cost capitalisation and revenue recognition).
D - Developments in External
Reporting - 10%
Learning outcomes
On completion of their studies
students should be able to:
- discuss pressures for extending
the scope and quality of external reports;
- explain how financial information
concerning the interaction of a business with the natural
environment can be communicated in the published accounts;
- identify those environmental
issues which should be disclosed;
- explain the process of measuring,
recording and disclosing the effect of exchanges between
a business and society - human resource accounting;
- identify the influences
on financial reporting of cultural differences across the
world;
- identify major differences
between IAS’s and US GAAP.
Syllabus content
- Increasing stakeholder demands
for information that goes beyond historical financial information
and the model for an expanded Operating and Financial Review
(OFR) proposed by the UK government.
- Environmental and social
accounting issues, differentiating between environmental
measures and environmental losses, capitalisation of environmental
expenditure, and the recognition of future environmental
costs by means of provisions.
- The Global Reporting Initiative:
non-financial measures of environmental impact.
- Human resource accounting.
- The influence of different
cultures on financial reporting.
- Pressures for improved quality
of financial reporting following large scale corporate collapses
in the US and UK, and implications for corporate governance
and external audit.
- Major differences between
IAS’s and US GAAP.
|
