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Old Thursday, August 13, 2015
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Talking Deconstructing Revised Syllabus of Accounting and Auditing

Paper-I (MARKS-100)

A) Financial Accounting (50 Marks)

I. Fundamental Accounting Principles, Concepts, Assumptions and Conventions:
Nature and Scope of Accounting, Accrual/Matching Concept, Consistency of Presentation and Comparability, True and Fair View, Neutrality, Materiality, Prudence, Completeness, Understandability and Usefulness, Going Concern, and Substance over Form.


This area is simple as it examines underlying concepts on which accounting principles are based and most of them can be studied from Framework for IFRS. Only definitions or MCQs can be examined from them so don’t waste your time on them, obtain an understanding prepare definitions and move on.

II. Accounting Cycle/Process and Financial Statements: Transactions and/or Events, General Journal, General Ledger, Trial Balance (Unadjusted),Adjusting Entries and Adjusted Trial Balance, Work Sheet, Financial Statements including Income Statement, Statement of Financial Position (Balance Sheet), Statement of Cash Flows and Statement of Changes in Equity in accordance with the Financial Reporting Framework as specified by International Accounting Standard Board (IASB) through IFRSs/IASs, and by Securities and Exchange Commission of Pakistan through Companies Ordinance 1984, and Closing and Reversing Entries.


Focus should be on double entry system, types of errors difference between General Journal and General Ledger lot of people confuse them and don’t now difference, difference between pre and post adjusted trial. I don’t know what work book is as it is never taught in any professional exam (CA, ACCA etc.)
But people with B.Com might know as work book is included in their syllabus. Frank Wood is good book for basics or refer . Only IAS 2 Inventories and IAS 16 Property Plant and Equipment should be studied from IFRS everything else is irrelevant ask Sarfaraz Shami (150+ CSS 2011). For financial statements see IV

III. Attributes, and Significance of Accounting Information: Attributes of Accounting Information, Information/Reporting Requirements of various Users/Stakeholders of Financial Statements including External (Investors/Shareholders, Creditors, Suppliers, Lenders/Financiers, Government Agencies etc.) and Internal (Board of Directors, Partners, Managers, Employees etc.) Stakeholders


Again theoretical area contains just two questions Attributes of Accounting Information and financial information needs of stakeholders.

IV. Accounting for common Legal Forms of a Business: Accounting Principles and Financial Statements of Sole-proprietorships, Partnerships and Joint Stock Companies including Banking Companies (Excluding Advanced Topics like Amalgamation, Capital Reduction, Consolidation etc.)


This is where things get interesting first to all of those still stuck on Vertical (Statement) vs T-account format Financial Statements (FS) itself contains word “statement” further syllabus is asking aspirants to prepare FS in accordance with Directives of ICAP/SECP/CO1984 that would be IAS 1and fourth and fifth. fourth and fifth schedule just provide information that needs to be included in financial statements further normally professionals use same wording as used in these schedule as local laws supersede standards and IAS 1 provides guidance for presentation of Financial Statements I don't even understand why in CSS exams T-accounts were being used in CA education as well as practically T-Accounts are used for ledgers and I have never encountered T-account Profits and Loss in my professional experience trust me I have 4.5 years’ experience with one of the big four audit firm another thing I don't understand is that why aren't people taking a look at Published Financial Statements of companies you can find them at their website or in case of listed companies you can also find them at website of Karachi Stock Exchange that can help you understand presentation of Financial.

Now as far as Sole proprietorship and partnership is concerned no laws or accounting standards apply so any good book will do but when it comes to companies (excluding Banking and Insurance Companies as well as mutual Funds) they are required under CO 1984 to follow fourth and fifth schedules and all directives issued by SECP which has adopted IFRS in Pakistan.

IFRS provides that

Financial Statements Include (Don't use IFRS names as local laws supersede IFRS):

1) Income Statement (IFRS name: Statement of Comprehensive Income)
2) Balance Sheet (IFRS name: Statement of Financial Position)
3) Statement of Changes in Equity
4) Statement of Cash Flows (If examined will be examined separately)
5) Notes to the Financial Statements

so to be on safe side refer Schedule 4 and 5 to Companies ordinance 1984 read with published financial statements of any company, these schedules also meet most of IFRS requirements and solve few final accounts questions from ICAP Module C Accounting (now CAF-7) as each attempt have at least one final accounts question past papers are available at ICAP website and solutions are also available but only to CA students as access to suggested solution requires login. If someone is interested same approach can be used for Sole proprietorship and partnership by using Module B past papers. Use CA Module B and C (now CAF-7) papers only for preparation of Financial Statements and don’t practice cash flows statements from module C (now CAF-7) or anything else for that matter instead use module B papers for them.

*IFRS International Financial Reporting Standards
*IAS International Accounting Standards (Part of IFRS)

In my opinion Financial Statements of Banking Company should never have been included but as these are included in syllabus so we may have study them or we can take a risk by skipping them as I have gone through past papers a few times and this topic was rarely examined but if you must study this topic the limit you self to Income Statement and Balance Sheet no need to go into notes to the financial statements because they were never examined. FS of Banks are prepared under Schedule 2 of Banking Companies Ordinance 2002 for the sake of understanding use published accounts of any bank preferably MCB

V. Accounting for Associations Not-for-profit, and for Public Sector: Accounting Principles and Financial Statements - of Associations Not-for-profit, and – of Public Sector Entities as per Standardized Financial Reporting Framework provided by International Public Sector Accounting Standards (IPSAS) Board and Practices being followed in the country.


Nothing new here it looks like someone taught FPSC some fancy new terms IPSAS like IFRS are more than 3000 pages long but good news is they are derived from IFRS they conform to the needs Public Sector so ignore everything after Association Not for Profit.

Financial Statements of Associations Not-for-profit also known as Club Accounts again use any good book and practice questions ca be found in CA Module B past papers. However if someone is interested they can download Published financial statements of any reputable NPO as ICAP have issued separate accounting standards for NGOs/NPOs.

VI. Accounting for Non-current Tangible Assets: Fundamental Concepts and Principles concerning Non-current Assets: Cost; Depreciable Amount; Depreciation; Fair Value; Property, Plant and equipment; Residual Value; and Useful Life. Depreciation Methods and their Application (as specified by International Accounting Standards Board):Straight-line Method; Reducing Balance Method; Number of Units Produced and basic know-how of other Methods/Techniques being commonly used by the Industry.


Study IAS 16 Property Plant and Equipment

VII. Fundamental and Technical Analysis of various Forms of Organizations:
Financial Statements’ Analysis including both Horizontal (Measuring Change) and Vertical (Ratio) Analysis including Liquidity Ratios, Activity Ratios, Debt Ratios, Profitability Ratios and Market Ratios; Technical and Industry Analysis.


Ideal subject combination for anyone from commerce background should include Accounting and Auditing, Mercantile Law and Business Administration as this topic is also included in Financial Management area of Business Administration there are other topics that overlap with Business Administration or Mercantile Law more on this later.

(B) Cost and Managerial Accounting (50 Marks)

VIII. Fundamental Cost Accounting Principles and Concepts:
Nature and Scope of Cost and Managerial Accounting; Cost Concepts, Elements and Classification; Underlying Differences among Financial, Cost, and Management Accounting.

IX. Accounting for Material, Labour and Factory Overheads (FOH): Recognition and Valuation Principles for Material Inventory, and Methods to control Material Inventory; Calculation/Measurement and Accounting for Payroll for all forms of Labour, Time Rate and Piece Rate Systems; Commonly used Group Incentive Schemes; Factory Overhead Costs and FOH Rate, Departmentalization of FOH Costs, their Allocation, Apportionment and Reapportionment (Primary and Secondary Distributions), Methods for Secondary Distribution including both Repeated Apportionment/Distribution and Algebraic Method.

X. Costing for Specific Jobs, and Process Costing: Nature of a Specific Job, and Job-order Costing; Process Flow and Process Costing by the use of Cost of Production Report (CPR).

XI. Management Accounting for Planning, Decision-making and Control:

Budgeting and its Use: Meaning and Nature of a Budget; Major Forms of a Budget including Production and Sales Budget, Cash Budget, Flexible Budgets, Zero-based Budget, Master Budget etc.

Break-even Analysis: Difference between Marginal and Absorption Costing Techniques; Concept of Relevant Cost; Application and Use of Contribution Margin and other Concepts for Planning and Decision-making (under Break-even Analysis)

Variance Analysis: Meaning and Use of Standards and Variances; Major Classification of Variances including Material, Labour and FOH Variances, and their Computation.


This area is straight forward nothing complex here, in my opinion syllabus does not include complex topics such as Decision making (scope of decision making is limited to Breakeven Analysis, transfer pricing, working capital management, linear programming etc. and I think more marks can be gained here as compared to Financial Accounting. Cost Accounting – Planning and control by Matz and Usry should be more than enough to cover whole syllabus.

Paper-II (MARKS-100)

(A) Auditing (40 Marks)

I. Fundamental Auditing Principles and Concepts: Audit and Auditing, True and Fair View (Framework to IFRS), Audit Assertions (ISA 315 Para 111), Reasonable Assurance (Definitions), Documentation (ISA 230) and Audit Evidence (ISA 500), Audit Program (General topic includes determining audit procedure to be performed), Audit Risks (ISA 315), Computer Information Systems (EDP Systems) and Computer-assisted Audit Techniques (CAAT), Inspection, Fraud (ISA 240), Going Concern (ISA 570), Audit Materiality (ISA 320), Misstatement (ISA 315 and ISA 450), Governance and Premise, Tests of Control and Substantive Procedures (ISA 330 for both).

II. Audit Considerations, Dimensions and Conduct: Internal Control System (ISA 315) and Internal Audit, Internal VS External Audit, Responsibility for Financial Statements, Audit Planning, Scope of an Audit, Objectives of an Audit, Inherent Limitations of an Audit, Risk Assessment and Management, Internal Audit and Corporate Governance, Classification of Audit, Qualities of an Auditor, Auditing in Computer Information Systems (EDP Systems) and Computer-assisted Audit Techniques, General Auditing Principles and Techniques commonly applicable to various Types of Undertakings including Merchandizing, Manufacturing, Banking, Insurance, Investment Entities etc., Audit Performance and Audit completion.


Auditing syllabus is bit and tricky confusing because two of the suggested books are at least 50 year old and if you go with International standards on Auditing published by ICAP in Pakistan than quite a few topics in syllabus are not discussed in ISAs’ on the other hand if you go with Basu you won’t find concepts fundamental to modern auditing such as Audit Assertions so I would recommend Auditing- Principles and Techniques by S.K Basu (Only Rs 425 from Paramount Publishers) along with standards for preparation of general topics such as audit and auditing, Auditing in EDP etc. as for standards I have mentioned ISA with every topic that can be studied from Standards everything else can be studied from Basu.

III. Role and Responsibilities of an Auditor: Auditor’s professional and legal Rights, Responsibilities & Duties, and Liabilities; Auditor’s Opinion and Report, and their classification (Types); - as specified under the Companies Ordinance 1984, and in the handbook of IFAC.


Section 252 to 260 from companies’ ordinance 1984, Listing Regulation 29-C (only read explanation “Prohibited services”), Code of Corporate Governance Clause xxxiii to xxxix these can be mixed with Basu for further understanding but remember that Basu is Indian book it may contain reference to Indian laws so use your brains only study general liabilities, duties etc. from Basu. From now on read carefully don’t use any other source no matter what anyone else tells you Audit Report in Pakistan is prepared under Section 255(3) of CO 1984 ISA 700, ISA 705 and ISA 706 (use 2014 or older Hand Book) because audit report format have changed and Pakistan laws have not adopted the changes yet although there are ongoing talks between ICAP and SECP. For further clarification take a look at published reports of listed as well as private companies that will give you an idea how Pakistani professionals are incorporating local requirement with the requirements of International Standards on Auditing.

(B) Business Taxation (30 Marks)

IV. Tax Structure and Fundamental Concepts vis--vis Income Tax in Pakistan:
Tax Structure in Pakistan; Fundamental Definitions/Terminologies defined under Section 2 of the Income Tax Ordinance 2001.

V. Income Tax and Sales Tax Principles, and their Application: Selected Provisions from Income Tax - Income for Tax Purposes [Section 4, 9 & 10], Heads of Income [Section 11], Tax Payable on Taxable Income [First Schedule to the Ordinance], Salary Income and Taxation [Sections 12 to 14], Income from Property [Sections 15 & 16], Income from Business[Sections 18 to 20], Capital Gains[Sections 37 to38], Income from other sources[Section 39, 40, 101(6), 111],Tax Credits [Sections 61 to 65], Taxation of Individuals, AOPs and Companies [Sections 86, 92, 94], Due Date for Payment of Tax [Section 137], Deduction of Tax at Source/With-holding Tax [Sections 147, 149, 153, 155]and related Income Tax Rules 2002. Selected Definitions and Provisions from Sales Tax –Scope of Tax [Section 3], Exempt supply [Section 2(11)], Goods [Section 2(12)], Input Tax [2(14)], Registered person [Section 2(25)], Supply [Section 2(33)], Tax [Section 2(34)], Retail Price and Retailer [Section 2(27)& 2(28)], Taxable Activity [Section 2(35)], Taxable Supply [Section 2(41)], Tax Fraction [Section 2(36)], Tax Period [Section 2(43)], Time of Supply [Section 2(44)], and Determination of Tax Liability [Section 7].


For Tax structure in Pakistan use any book you can find or just get few pages copied from CAF 6 Study text of CA

For Income Tax I am personally going to use Sir Khalid Petiwalas book which is good simple and to the point, He has also incorporated relevant rules and notices into relevant topics. I have passed both of my Tax papers using his books.

Sales tax only included definition no need to buy any books just download Sales Tax Act 1990 from FBR website copy relevant sections on new MS word sheet and press Crtl+P.

(C) Business Studies, and Finance (30 Marks)

VI. Business Studies:
Nature and Scope of a Business Entity, Contemporary Challenges posed to a Business; Common Legal Forms of a Business Entity – Sole proprietorship, Partnership, Joint Stock Company, their Features, Formation and Management; Business Combinations and their Scope; Business Cycle and its Implications; Role of Information Technology in Business.


Common Legal Forms of a Business Entity – Sole proprietorship, Partnership, Joint Stock Company, their Features, Formation and Management can and should be studied with Mercantile Law as Partnership Act and Companies Ordinance cover these topics extensively for other topics use any good book.

VII. Finance: Meaning, Nature and Scope of Finance, and Financial Management; Common Modes (Types) of Business Finance – Short-, Medium-, and Long-term Financing; Nature and Scope of Financial Markets and Institutions; Features and Classification of Financial Markets; Financial Management Techniques for Decision making: Time Value of Money, Cost of Capital and Capital Budgeting Techniques.

III. Financial Management (Business Administration)

An overview of Financial Management
Introduction and significance of financial markets, Differentiation between real assets and financial assets, Types of Financial Markets, Role of capital and money markets in economic development, Organizational goals and shareholder wealth maximization perspective

Time Value of Money
Cost of money and the factors effecting the cost, Interest rate fundamentals and determinants of market interest rate, Role of Time value of money in finance, Concept of future value and present value, Making timelines, Annuities, Perpetuities and mixed stream of cash flows, with and without growth, Present value and future value of cash flow streams, Compounding Interest; discrete and continuous, Loan amortization

Analysis and Interpretation of Financial Statements
Reading the financial statements, Horizontal and vertical analysis including common size, ratio, comparative and index number trend analysis, Forecasting financials for future decision making, Evaluating credit, management, profitability, risk etc. using financial statements

Risk, Return and Introduction to Pricing
Measures of Risks and return, Investment return and expected rate of return, Standalone risk: standard deviation and coefficient of variation, Risk aversion and required rate of return, Portfolio risk: Diversifiable vs. Market risk, Security Market Line and CAPM, Calculating WACC, Discounting process for price determination, Relevant risk and return for valuation

Cash flow and Budgeting
Significance of budgeting, Making cash budgets, Making financial forecasts, Difference between profit and cash flow, Read and analyze Statement of Cash flow.

Capital Budgeting
Significance of Capital budgeting, Cash flow calculations: incremental cash flows, Capital budgeting decision rules: NPV, IRR, MIRR, Return, Finding optimal capital structure, calculating appropriate discount rate, Capital Rationing


This syllabus area is covered by Financial Management area of Business Administration. This area can be difficult to tackle but past papers have shown that examiner focuses on theory only time examiner has bothered with mathematical question during last five years was a ratio analysis question that too in Business Administration paper also revised syllabus have included topics like Capital rationing WAAC CAPM etc. so this time it looks like focus will be on practical side of Financial Management so if we are lucky this like cost accounting can prove to be gold mine on other hand if past trend persists than more theory and more rote learning would be required from aspirants.
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