Professional
Qualification - Managerial Level
Financial
Accounting and Tax Principles
First examined in May 2005
Syllabus outline
The syllabus comprises:
Topic |
Study
weighting |
| A |
Principles
of Business Taxation |
20% |
| B |
Principles
of Regulation of Financial Reporting |
10% |
| C |
Single Company
Financial Accounts |
45% |
| D |
Managing
Short Term Finance |
25% |
Learning Aims
Students should be able to:
- describe the types of business
taxation rules and requirements likely to affect a company
(in respect of itself and its employees);
- describe and discuss how
financial reporting can be regulated and the system of International
Accounting Standards;
- prepare statutory accounts
in appropriate form for a single company;
- assess and control the short
term financial requirements of a business entity.
Assessment Strategy
There will be a written examination
paper of three hours, with the following sections.
- Section A - 50 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
Six compulsory short answer questions, each worth 5 marks.
A short scenario may be given, to which some or all questions
relate.
- Section C – 20 marks
One question, from a choice of two, worth 20 marks. Short
scenarios may be given, to which questions relate.
Learning Outcomes and Syllabus
Content
A - Principles of Business
Taxation - 20%
Learning Outcomes
On completion of their studies
students should be able to:
- identify the principal types
of taxation likely to be of relevance to an incorporated
business in a particular country, including direct tax on
the company's trading profits and capital gains, indirect
taxes collected by the company, employee taxation, withholding
taxes on international payments;
- describe the features of
the principal types of taxation likely to be of relevance
to an incorporated business in a particular country (e.g.
in terms of who ultimately bears the tax cost, withholding
responsibilities, principles of calculating the tax base);
- describe the likely record-keeping,
filing and tax payment requirements associated with the
principal types of taxation likely to be of relevance to
an incorporated business in a particular country;
- describe the possible enquiry
and investigation powers of taxing authorities;
- identify situations in which
foreign tax obligations (reporting and liability) could
arise and methods for relieving foreign tax;
- explain the difference in
principle between tax avoidance and tax evasion;
- describe sources of tax
rules and explain the importance of jurisdiction;
- explain and apply the accounting
rules contained in IAS 12 for current and deferred taxation.
Syllabus Content
- Concepts of direct versus
indirect taxes, taxable person and competent jurisdiction.
- Sources of tax rules (e.g.
domestic primary legislation and court rulings, practice
of the relevant taxing authority, supranational bodies,
such as the EU in the case of value added/sales tax, and
international tax treaties).
- Direct taxes on company
profits and gains:
- The principle of non-deductibility
of dividends and systems of taxation defined according
to the treatment of dividends in the hands of the shareholder
(e.g. classical, partial imputation and imputation);
- The distinction between
accounting and taxable profits in absolute terms (e.g.
disallowable expenditure on revenue account, such as
entertaining, and on capital account, such as formation
and acquisition costs) and in terms of timing (e.g.
deduction on a paid basis, tax depreciation substituted
for book depreciation).
- The nature of rules
recharacterising interest payments as dividends.
- Potential for variation
in rules for calculating the tax base dependent on the
nature or source of the income (schedular systems).
- The need for rules dealing
with the relief of losses.
- The concept of tax consolidation
(e.g. for relief of losses and deferral of capital gains
on asset transfers within a group).
- Indirect taxes collected
by the company:
- In the context of indirect
taxes, the distinction between unit taxes (e.g. excise
duties based on physical measures) and ad valorem taxes
(e.g. sales tax based on value).
- The mechanism of value
added/sales taxes, in which businesses are liable for
tax on their outputs less credits for tax paid on their
inputs, including the concepts of exemption and variation
in tax rates depending on the type of output and disallowance
of input credits for exempt outputs.
- Employee taxation:
- The employee as a separate
taxable person subject to a personal income tax regime.
- Use of employer reporting
and withholding to ensure compliance and assist tax
collection.
- The need for record-keeping
and record retention that may be additional to that required
for financial accounting purposes.
- The need for deadlines for
reporting (filing returns) and tax payments.
- Types of powers of tax authorities
to ensure compliance with tax rules:
- Power to review and
query filed returns,
- Power to request special
reports or returns,
- Power to examine records
(generally extending back some years),
- Powers of entry and
search,
- Exchange of information
with tax authorities in other jurisdictions.
- International taxation:
- The concept of corporate
residence and the variation in rules for its determination
across jurisdictions (e.g. place of incorporation versus
place of management).
- Types of payments on
which withholding tax may be required (especially interest,
dividends, royalties and capital gains accruing to non-residents).
- Means of establishing
a taxable presence in another country (local company
and branch).
- The effect of double
tax treaties (based on the OECD Model Convention) on
the above (e.g. reduction of withholding tax rates,
provisions for defining a permanent establishment).
- Principles of relief
for foreign taxes by exemption, deduction and credit.
- The distinction between
tax avoidance and tax evasion, and how these vary among
jurisdictions (including the difference between the use
of statutory general anti-avoidance provisions and case
law based regimes).
- Accounting treatment of
taxation and disclosure requirements under IAS 12.
Note: Examples of general principles
should be drawn from a ‘benchmark’ tax regime (e.g. the UK,
USA, etc) or an appropriate local tax regime. Details of any
specific tax regime will NOT be examined.
B - Principles of Regulation
of Financial Reporting - 10%
Learning Outcomes
On completion of their studies
students should be able to:
- explain the need for regulation
of published accounts and the concept that regulatory regimes
vary from country to country;
- explain potential elements
that might be expected in a regulatory framework for published
accounts;
- describe the role and structure
of the International Accounting Standards Board (IASB) and
the International Organisation of Securities Commissions
(IOSCO);
- explain the IASB’s Framework
for the Presentation and Preparation of Financial Statements;
- describe the process leading
to the promulgation of an international accounting standard
(IAS);
- describe ways in which IAS’s
can interact with local regulatory frameworks;
- explain in general terms,
the role of the external auditor, the elements of the audit
report and types of qualification of that report.
Syllabus Content
- The need for regulation
of accounts.
- Elements in a regulatory
framework for published accounts (e.g. company law, local
GAAP, review of accounts by public bodies).
- GAAP based on prescriptive
versus principles-based standards.
- The role and structure of
the IASB and IOSCO.
- The IASB’s Framework for
the Presentation and Preparation of Financial Statements.
- The process leading to the
promulgation of a standard practice.
- Ways in which IAS’s are
used: adoption as local GAAP, model for local GAAP, persuasive
influence in formulating local GAAP.
- The powers and duties of
the external auditors, the audit report and its qualification
for accounting statements not in accordance with best practice.
C - Single Company Financial
Accounts - 45%
Learning outcomes
On completion of their studies
students should be able to:
- 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 accounting
rules contained in IAS’s dealing with reporting performance,
tangible fixed assets and inventories;
- explain the accounting rules
contained in IAS’s governing share capital transactions;
- explain the principles of
the accounting rules contained in IAS’s dealing with disclosure
of related parties to a business, construction contracts
(and related financing costs), research and development
expenditure, intangible fixed assets (other than goodwill
on consolidation), impairment of assets, post-balance sheet
events, contingencies, and leases (lessee only).
Syllabus Content
- Preparation of the financial
statements of a single company, including the statement
of changes in equity (IAS 1).
- Preparation of cash flow
statements (IAS 7).
- Reporting performance: recognition
of revenue, measurement of profit or loss, extraordinary
items, prior period items, discontinuing operations and
segment reporting (IAS 1, 8, 14, 18 & 35).
- Property, Plant and Equipment
(IAS 16): the calculation of depreciation and the effect
of revaluations, changes to economic useful life, repairs,
improvements and disposals.
- Inventories (IAS 2).
- Issue and redemption of
shares, including treatment of share issue and redemption
costs (IAS 32 and IAS 39), the share premium account, the
accounting for maintenance of capital arising from the purchase
by a company of its own shares.
- The disclosure of related
parties to a business (IAS 24).
- Construction contracts and
related financing costs (IAS 11 & 23): determination
of cost, net realisable value, the inclusion of overheads
and the measurement of profit on uncompleted contracts.
- Research and development
costs (IAS 38): criteria for capitalisation.
- Intangible Assets (IAS 38)
and goodwill (excluding that arising on consolidation):
recognition, valuation and amortisation.
- Impairment of Assets (IAS
36) and its effect on the above.
- Post-balance sheet events
(IAS 10).
- Provisions and contingencies
(IAS 37).
- Leases (IAS 17) - Operating
and finance leases in the books of the lessee.
D - Managing Short Term Finance
- 25%
Learning Outcomes
On completion of their studies
students should be able to:
- calculate and interpret
working capital ratios for business sectors;
- prepare and analyse cash-flow
forecasts over a twelve-month period;
- identify measures to improve
a cash forecast situation;
- compare and contrast the
use and limitations of cash management models and identify
when each model is most appropriate;
- analyse trade debtor information;
- evaluate debtor and creditor
policies;
- evaluate appropriate methods
of stock management;
- identify alternatives for
investment of short-term cash surpluses;
- identify sources of short-term
funding;
- identify appropriate methods
of finance for trading internationally.
Syllabus Content
- Working capital ratios (e.g.
debtor days, stock days, creditor days, current ratio, quick
ratio) and the working capital cycle.
- Working capital characteristics
of different businesses (e.g. supermarkets being heavily
funded by creditors) and the importance of industry comparisons.
- Cash-flow forecasts, use
of spreadsheets to assist in this in terms of changing variables
(e.g. interest rates, inflation) and in consolidating forecasts.
- Variables that are most
easily changed, delayed or brought forward in a forecast.
- The link between cash, profit
and the balance sheet.
- The Baumol and Miller–Orr
cash management models.
- The credit cycle from receipt
of customer order to cash receipt.
- Evaluation of payment terms
and settlement discounts.
- Preparation and interpretation
of age analyses of debtors and creditors.
- Establishing collection
targets on an appropriate basis (e.g. motivational issues
in managing credit control).
- The payment cycle from agreeing
the order to make payments.
- Centralised versus decentralised
purchasing.
- The relationship between
purchasing and stock control.
- Principles of the economic
order quantity (EOQ) model and criticisms thereof.
- Types and features of short-term
finance: trade creditors, overdrafts, short-term loans and
debt factoring.
- Use and abuse of trade creditors
as a source of finance.
- The principles of investing
short term (i.e. maturity, return, security, liquidity and
diversification).
- Types of investments (e.g.
interest-bearing bank accounts, negotiable instruments including
certificates of deposit, short-term treasury bills, and
securities).
- The difference between the
coupon on debt and the yield to maturity.
- Export finance (e.g. documentary
credits, bills of exchange, export factoring, forfaiting).
|
