Regulatory Framework
International Accounting Standards
IAS questions test both knowledge of the standards and their practical application. You must be able to identify which IAS applies to a given scenario, explain the required treatment, and adjust financial statements accordingly — always citing the standard by name and number.
Always name the specific IAS — do not just say “accounting standards”. State: (1) the name and number of the standard, (2) what treatment it requires, (3) how the company’s accounting is correct or incorrect, and (4) what adjustment should be made. For calculation questions, show the corrected figure clearly. The most commonly tested standards are IAS 2, IAS 10, IAS 16, IAS 37, and IAS 38.
IAS Quick Reference — 9706 Syllabus
| Standard | Name | Key Rule / Exam Focus |
|---|---|---|
| IAS 1 | Presentation of Financial Statements | Format of SoPL, SoFP, SoCE. Current vs non-current classification. Going concern, consistency, accruals basis. |
| IAS 2 | Inventories | Value at lower of cost and NRV. Only FIFO and weighted average allowed (LIFO prohibited). NRV = estimated selling price − costs to complete and sell. |
| IAS 7 | Statement of Cash Flows | Three sections: Operating / Investing / Financing. Indirect method: start from profit for year, adjust for non-cash items and working capital changes. |
| IAS 10 | Events After the Reporting Period | Adjusting events (conditions existed at year-end) → adjust FS. Non-adjusting events (new conditions after year-end) → disclose only if material. |
| IAS 16 | Property, Plant and Equipment | Cost model or revaluation model. Upward revaluation → credit Revaluation Reserve (OCI, not SoPL). Depreciate over useful life. Review residual value annually. |
| IAS 36 | Impairment of Assets | Carry asset at lower of carrying amount and recoverable amount. Recoverable amount = higher of fair value less costs to sell, and value in use. |
| IAS 37 | Provisions, Contingent Liabilities & Assets | Provision: present obligation + probable outflow + reliable estimate → recognise. Contingent liability: possible → disclose. Contingent asset: never recognise until virtually certain. |
| IAS 38 | Intangible Assets | Research → always expense. Development → capitalise if PIRATE criteria met. Internally generated goodwill, brands, mastheads → cannot capitalise. |
Key Concepts to Revise
Conceptual Framework
Qualitative characteristics: Relevance (materiality), Faithful representation (complete, neutral, free from error)
Enhancing: Comparability, Verifiability, Timeliness, Understandability. Underlying assumption: going concern
IAS 2 — NRV Write-Down
NRV = estimated selling price − costs to complete and sell
If NRV < cost → write down to NRV. The write-down is an expense in SoPL. Reversal allowed if NRV subsequently recovers.
IAS 10 — Adjusting vs Non-Adjusting
Adjusting: customer declared bankrupt before FS approved → bad debt, adjust receivable
Non-adjusting: factory destroyed by fire after year-end → disclose in notes only, no adjustment to FS
IAS 16 — PPE Revaluation
Upward: Dr PPE → Cr Revaluation Reserve (not profit)
Downward: Dr SoPL (expense) unless reversing prior surplus — then Dr Revaluation Reserve first. Depreciation recalculated on new carrying amount.
IAS 37 — Provision Recognition
Three criteria must ALL be met: (1) present obligation from past event, (2) probable outflow, (3) reliable estimate possible
If only possible → contingent liability → notes only. If remote → no disclosure needed.
IAS 38 — PIRATE Criteria
Development costs capitalised only if: Probable future benefits, Intention to complete, Resources adequate, Ability to use/sell, Technically feasible, Expenditure measurable reliably
Research costs are always expensed — no capitalisation permitted