October 2024
Nick Craggs explains the intricacies of the super-tough DAIF exam, and reminds sitters that competency is being tested, not whether their answers are perfect.
Drafting and Interpreting Financial Statements (DAIF) is the unit where I get asked “where do I start, there is so much to learn!” the most.
Please don’t despair – no one can be expected to know everything in this unit. This is one of the hardest units at the hardest level. We are not looking for you to get 100%.
There are only seven tasks in this unit, so you want to be making sure you pick up marks on all of these tasks. Not getting any marks on one task is going to drastically reduce your chances of being deemed competent on this assessment.
To pass this exam you should be getting just about full marks in tasks 1 and 2 if you are well prepared. They are worth 40 marks out of a possible 120. Your statements might not balance, but you could well have 39/40 marks.
There are a lot of level 3 concepts here, such as depreciation, accruals and prepayments, but in the context of a limited company.
Remember, the ‘own figure’ rule comes into play here. If you think one of your figures is incorrect, don’t give up. Using that figure later on correctly will still lead to marks.
Consolidated accounts, whilst initially hard, is another one where you should be doing well. As you will always have to deal with PUP and intercompany transactions, and you do the same thing every time for those adjustments. The same issues come up every time in this question, and it is worth 30 marks, so these should be 30 familiar marks. You get marks for just adding two numbers together in some cases.
It is hard to guess what it will the first written task be, there are lots of financial reporting standards and elements to the framework. But the last written task will be ratio analysis, where we will probably be looking at gross margin and operating margin as they are so important.
Gearing and interest cover are another two I would bet would come up. You can just use the same standard answers for each task but tweak them to the context of the scenario. For example, if gross profit has changed, you know this is related to the cost per unit changing and/or the sales price per unit changing, and you can amend each depending on if the gross profit margin has risen or fallen. You can suggest things as being the cause of the change in the ratios that it might not tell you that have happened in the scenario for certain. If your suggestion is sensible they have to give you the marks. If interest cover has fallen, you can suggest that they took out a loan and so they now must pay more interest.
Whatever you do, don’t suggest something that cannot be true, so if interest cover has fallen, a rise in operating profit isn’t going to be an answer we are looking for. Don’t forget to link one ratio to another and give real-world suggestions as to what may have caused the change or difference in the ratio.
Please don’t think that you need to learn every IFRS number, you don’t; life is too short. We are testing that you know what to do, not which number IFRS tells you what to do.
In tasks 3 and 4 you don’t need
to know a dictionary definition of every single standard and element of the framework off by heart. You need to know a reasonable amount about them and some of the main ones are outlined below:
- AS 38 Intangible Assets – just learn PIRATE and you will get plenty of marks –
- Probable future economic benefits will be generated by the asset
- Intention to complete and use/ sell asset
- Resources adequate and available to complete and use/ sell asset
- Ability to use/sell the asset
- Technical feasibility of completing asset for use/sale
- Expenditure can be measured reliably
- IAS 36 Impairment of Assets – you will need to know that the asset should be held at the lower of Net Book Value and the recoverable amount. The recoverable amount is the higher of the fair value less costs to sell, and the value in use.
- IAS 37 Provisions and Contingencies – you must know that you can only recognise a provision when it has an obligation, either legal or constructive; it is probable that there will be an out flow in money, and you can measure is reasonably accurately. Also remember the recognition rules around contingent assets and contingent liabilities are not the same.
This is where the AAT are looking for competency, not perfection. Please don’t despair, we are looking for you to pass the exam, not get 100%!
- Nick Craggs, AAT distance learning director, First Intuition
