i) Question Type The following are guidelines on the type of questions and their approximate weightings:

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1 Purpose Financial Accounting: Liabilities & Equities [FA3] Examination Blueprint 2014/2015 The Financial Accounting: Liabilities & Equities [FA3] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allotted to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives. In addition, information is provided on the proportion of each question type presented in the examination (that is, multiple choice, quantitative problems, and so on). Use Students should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course materials; however, students are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide students with a greater depth of understanding of accounting concepts. Examination Objectives The objectives of this three-hour, comprehensive examination are to test CGA students on the prerequisite knowledge required for advancement into Financial Accounting: Consolidations & Advanced Issues [FA4], and to ensure that students have the broad-based knowledge in financial accounting needed to function properly in upper-level education and certification courses. Examination Guidelines for Questions i) Question Type The following are guidelines on the type of questions and their approximate weightings: Question Item Multiple-choice questions Short-answer problems, including quantitative problems. Description Questions may take a conceptual form or they may require analytical skills to derive the correct solution. Questions may focus on technical or analytical aspects of the material. Short, integrative cases may be used to pull together related issues. For example, a problem may require students to outline alternatives, supporting their recommendations with numerical analysis. Several questions will also be decision oriented, where the student is asked to take the role of creditor, investor, manager, or auditor and make a recommendation or a decision based on analysis performed. Percentage Weighting 20%-30% 70%-80% ii) Question Content The following table is organized according to content area and provides information on topics, learning objectives, weighting, and levels of competence. Examination sessions: December 2014; March 2015; June 2015 Page 1 of 11

2 Financial Accounting: Liabilities & Equities [FA3] Content 1. Accounting policy and analysis 6% to 9% 1.1 The financial reporting environment and capital markets Explain the alternative sets of generally accepted accounting principles (GAAP) for Canadian companies, and explain the concept of capital market efficiency, including implications for financial reporting and statement analysis. Levels 1 and Ethical accounting policy choices 1.3 Strategic analysis Explain the importance of accounting information and policy choice in contracting situations, describe typical motivations for accounting policy choice, and describe the impact of accounting policy choice on financial statement elements. Explain the measures of operating performance (ROE/ROI and ROA) and their significance, and describe the underlying factors or strategies that produce return to investors. 1.4 Horizontal and vertical analysis Perform horizontal and vertical analysis on financial statement accounts, and interpret the data obtained. 1.5 Ratio analysis Calculate the most widely used ratios related to efficiency, solvency, liquidity, and profitability; explain the information supplied by each and by the ratios as a group; and explain the limitations of ratio analysis. 1.6 Analysis of the statement of cash flow 1.7 Introduction to case analysis 1.8 Quality-of-earnings analysis Analyze the information content of a statement of cash flow. Perform a case analysis: Recognize the problem, identify and analyze policy choice alternatives, and provide ethical recommendations. Explain the concept of quality of earnings, and apply QOE to financial statement analysis. Examination sessions: December 2014; March 2015; June 2015 Page 2 of 11

3 2. Liabilities 10% to 13% 2.1 Liabilities: Theoretical foundation 2.2 Contractual obligations, lawsuits, and guarantees Explain the characteristics of a financial liability and a non-financial liability. Determine the appropriate accounting treatment for provisions, including purchase commitment losses and lawsuits, and for guarantees, which are financial liabilities. 2.3 Environmental liabilities 2.4 Current and long-term liabilities Apply the principles of liability recognition and measurement to situations that include environmental liabilities. Define working capital, identify various sources of debt financing, and determine the classification and valuation for various liabilities. 2.5 Calculating bond prices 2.6 Subsequent changes in bond interest rates Calculate a bond price on issuance and at subsequent points in time. Explain the effect of a market interest rate change on shareholder wealth. 2.7 Calculating interest expense Measure and report interest expense, explain the nature of a discount or premium, and capitalize interest where required. 2.8 Preparing a bond amortization schedule Calculate periodic interest expense using the effective interest rate method. 2.9 Debt retirement and defeasance Record a bond retirement for cash and through defeasance. Levels 1 and Foreign-currency denominated debt Describe the accounting procedures for recognizing foreign-currency denominated debt Disclosure, statement of cash flow (SCF), and quality of earnings (QOE) Describe the disclosure required for liabilities and financial instruments in general, prepare statement of cash flow disclosures related to debt transactions, and describe QOE implications. Examination sessions: December 2014; March 2015; June 2015 Page 3 of 11

4 3. Shareholders equity 9% to 12% 3.1 Equity: Theoretical foundation 3.2 Moral and ethical foundations of a business Outline the distinguishing characteristics of a corporation, and define equity as it applies to corporate entities. Explain the purpose of business ethics, the moral status of a corporation, and two views of corporate governance. 3.3 Issuance of share capital 3.4 Retirement of share capital and treasury stock Record the issuance of shares for cash or other consideration, including transactions relating to subscriptions receivable. Record treasury share transactions and the retirement of shares, and discuss the effect of the resulting gain or loss on the financial statements. 3.5 Retained earnings 3.6 Dividend distribution 3.7 Stock dividends and stock splits 3.8 Reserves and comprehensive income Discuss the concepts of retained earnings and appropriations of retained earnings, and record transactions affecting retained earnings. Calculate dividend distributions, acknowledging various dividend entitlements. Record a stock split and a stock dividend, and explain the substance of the transactions and the value received by the recipient. Explain, record, and present reserves on the statement of financial position, and calculate comprehensive income. 3.9 Disclosure, statement of cash flow, and QOE Prepare a statement of changes in equity, disclosure on the statement of cash flow, disclosure of terms and conditions, and describe QOE concerns relating to equity. Examination sessions: December 2014; March 2015; June 2015 Page 4 of 11

5 Topics Learning Objectives Levels of Weighting (%) 4. Complex debt and equity instruments 11% to 18% 4.1 Financial instruments: Identification and classification Explain debt and equity, identify financial instruments, and classify financial instruments according to their terms. 4.2 Debt convertible at the investor s option Record convertible bonds that are convertible at the investor s option. 4.3 Convertible debt: Conversion mandatory at the issuer s option 4.4 Share-based payments Describe the accounting treatment for convertible bonds that are convertible at the issuer s option (that is, where conversion is mandatory). Explain and illustrate the accounting treatments for stock options and long-term compensation packages. 4.5 Derivatives Describe and identify derivative financial instruments, and explain the accounting implications of derivatives. 4.6 Statement of cash flow and QOE Prepare appropriate statement of cash flow disclosures of typical transactions for financial instruments, and explain related QOE issues. 4.7 Disclosure Describe the four areas of required disclosure for financial instruments. 4.8 Financial restructuring, bankruptcy, and receivership Identify and discuss issues related to financial restructuring, bankruptcy, and receivership. Examination sessions: December 2014; March 2015; June 2015 Page 5 of 11

6 5. Leases 8% to 12% 5.1 Leases: Theoretical foundation 5.2 Operating leases Explain how property rights are obtained and obligations assumed under lease agreements. Explain and account for an operating lease (rental contract). 5.3 Classification of financing leases Classify leases as operating leases or financing leases for the lessee. 5.4 Lease accounting: Lessee 5.5 Amortization table for a financing lease liability 5.6 Less-common leasing issues 5.7 Financial statement disclosure for lessees, and QOE 5.8 Lease accounting: Lessor Record leases from the perspective of the lessee, and analyze the impact of leasing agreements on lessee financial statements. Calculate lease liability amortization using a worksheet. Record a sale and leaseback transaction, and explain land leases, alternative methods for interest, and the impact of contingent rent. Prepare financial statement disclosure for a lease from the perspective of the lessee (including note disclosure), and assess QOE concerns. Classify leases as operating or financing for the lessor, and analyze and explain the impact of various categories of leases in lessor financial statements. Examination sessions: December 2014; March 2015; June 2015 Page 6 of 11

7 6. Accounting for income tax 11% to 15% 6.1 Permanent and temporary differences Explain permanent and temporary differences between accounting and taxable income. 6.2 Accounting alternatives 6.3 Tax allocation 6.4 Investment tax credits Explain the characteristics of deferred income taxes and describe the major alternatives for recording corporate income tax. Determine the appropriate accounting treatment for income tax, recognizing permanent and temporary differences. Record investment tax credits, and explain the substance of the benefit received. 6.5 Tax losses 6.6 Disclosure, statement of cash flow, and QOE Explain the impact of operating losses (both loss carrybacks and loss carryforwards) for tax purposes on the financial statements. Explain financial statement disclosure required for income tax and tax on the statement of cash flow, and assess tax-related quality-of-earnings issues. Examination sessions: December 2014; March 2015; June 2015 Page 7 of 11

8 7. Pension costs and obligations 8% to 14% 7.1 Characteristics of pensions 7.2 Defined contribution pension plans 7.3 Pension obligations and assets 7.4 Pension funding methods 7.5 Three elements of pension accounting for a defined benefit pension plan. 7.6 Pension plan liability recognition 7.7 Other post-employment benefits Outline the characteristics of pension plans, and define the key variables used to measure pension amounts. Record a defined contribution pension plan. Explain the major causes of change for a defined benefit pension plan obligation to employees and for pension fund assets. Explain the major categories of actuarial cost methods: accumulated benefit, projected unit credit, and level contribution. Analyze and record service cost, net interest on the net defined benefit liability or asset and remeasurement of the net defined benefit liability or asset. Describe the net pension obligation (net pension plan status) in the context of the recognition criteria. Explain the accounting approach for post-employment benefits other than pensions. 7.8 Pension cash flow, disclosure, and QOE Assess quality-of-earnings issues for pension plans, explain statement of cash flow implications, and describe financial statement disclosure for pension costs and obligations. Examination sessions: December 2014; March 2015; June 2015 Page 8 of 11

9 8. Accounting changes 6% to 10% 8.1 Accounting changes: Theoretical foundation Explain the effects of accounting changes on the consistency of financial information. 8.2 Types of accounting changes 8.3 All-inclusive earnings and current operating performance 8.4 Retrospective treatment Describe and classify the three types of accounting changes: changes in policy, changes in estimate, and corrections of errors. Explain the difference between the all-inclusive concept of income and the current operating performance approach. Record and report an accounting change through retrospective treatment. 8.5 Prospective treatment 8.6 Correction of a prior period error Record and report an accounting change through prospective treatment. Correct and report an accounting error. 8.7 Disclosure of accounting changes Prepare financial statement disclosure, as required, to accompany an accounting change, including statement of cash flow disclosure. 8.8 QOE and accounting policy choice Assess quality-of-earnings issues in the presence of an accounting change, evaluate such a change from an ethical and a theoretical perspective, and evaluate accounting policies in an environment of changing user objectives. Examination sessions: December 2014; March 2015; June 2015 Page 9 of 11

10 9. Earnings per share 6% to 9% 9.1 Earnings per share: Theoretical foundation 9.2 Basic EPS 9.3 Diluted EPS 9.4 Reporting requirements and other per-share amounts 9.5 Interpreting EPS and assessing QOE Explain why earnings per share (EPS) is disclosed in the financial statements. Calculate basic EPS. Identify the circumstances that require disclosure of diluted EPS, and calculate diluted EPS. Prepare financial statement disclosure related to EPS, and explain other per-share amounts. Interpret EPS disclosure and assess related quality-of-earnings issues. Examination sessions: December 2014; March 2015; June 2015 Page 10 of 11

11 Topics Learning Objectives Levels of Weighting (%) 10. Partnership equity accounting 5% to 8% 10.1 Partnership equity accounting: Theoretical foundation Describe the theory and concept of ownership interests, including the proprietary and entity views Characteristics of a partnership 10.3 Creation and termination of a partnership Explain the rights and obligations of a partner, describe the concept of mutual agency, and compare advantages and disadvantages of partnerships and corporations. Explain how a partnership is created and dissolved General and limited partnerships 10.5 Partnership contribution and profit distribution 10.6 Admission, retirement, withdrawal, or death of a partner 10.7 Liquidation of a partnership 10.8 Financial statement presentation and QOE Compare and contrast the elements of a general partnership and a limited partnership. Record the creation of a partnership and its ongoing operations, including the distribution of net income (loss) among the partners. Record admission, retirement, withdrawal, or death of a partner. Record the liquidation of a partnership. Prepare the financial statements for a partnership, and assess quality-of-earnings issues for partnerships. Examination sessions: December 2014; March 2015; June 2015 Page 11 of 11