ANNEXURE IV

The CFA Program : Curriculum

GROUP A

Introduction to Accounting and Financial Statements: The meaning of Accounting – Attributes of Accounting – The output of the Accounting Process –  Uses of Financial Statements – The users of output – Double Entry System of Financial Accounting –        Concept of Capital & Income – Generally Accepted Accounting Principles.

The Accounting Process: Basics of accounting mechanics – Rules of Debit and Credit – Types of Accounts – Books of Account – The transactions – Posting entries in Ledger Accounts – Maintenance of Cash book – Maintenance of Petty Cash book – The Special Journal and Ledger maintenance – Recording transactions in various books.

Trial Balance and Adjustments: Extracting the Trial balance from ledger balances – Detecting errors revealed and concealed by a Trial balance – Passing adjustment entries – Outstanding –Closing inventory – Prepayments – Depreciation – Creating provision for doubtful receivables –Creating provision for Discounts.

Preparation of Financial Statements: Preparation of Trading Account – Distinction between capital and revenue expenditure – Preparation of Profit and Loss Account giving double effect to adjustments – Preparation of Balance Sheet – Analysis of Balance Sheet – Relation between Trial Balance, Profit & Loss A/c and Balance Sheet – Limitations of Balance Sheet.

Accounting of Inventories: Inventory Pricing – Raw Material Inventory – Work-in-Progress –Finished Goods Inventory – Inventory Relationship with Cost of Good Sold – Inventory Cost Flow Methods – Specific Identification method – First-in-First out (FIFO) – Average cost – Last-in- first-out (LIFO) – Inventory Systems – Costs of Inventories – Cost of Acquisition – Costs of Conversions – Other costs – Net Realizable Value – Techniques of Measurement of Inventory Cost – International inventory accounting methods – Treatment of inventory in – Interim  Reporting – Business Combinations – Terminated Contracts – Research & Development – Construction Contracts.

Measurement and Recognition of Income & Expense: Principles of Revenue Recognition – Conservatism Concept – Realization Concept – Matching Concept – Methods of Revenue Recognition – Percentage of Completion Method – Production Method – Installment Method – Delivery Method – Revenue Recognition in case of – Sale of Goods – Rendering Services – Interest, Royalties &  Dividends – Effect of Uncertainties on Revenue Recognition – Revenue realization – International treatment of Revenue Recognition

Accounting of Long-Lived Assets: Capitalization versus expensing – Financial statement effects of capitalization – Capitalization of interest Costs – Betterments – Replacements – Methods of Depreciation – Straight line method – Written Down Value method – Sum of the years digit method – Units of Production Method – Changes in method of depreciation – Disposal of Fixed Assets – Disclosures for Depreciation – Identification of Fixed Assets – Components of costs of Fixed Assets – Fixed asset disclosures – Self constructed Assets –
Non-monetary consideration – Improvement and Repairs – Revaluation – Valuation of fixed assets in Special Cases – International treatment of fixed assets accounting – Treatment of Borrowing costs – Borrowing costs eligible for capitalization – Commencement of  capitalization – Suspension of capitalization – Cessation of capitalization – International treatment of Borrowing costs.

Accounting of Intangible Assets: Introduction to Intangible Assets – Method of valuation of Goodwill – Simple Profits Method – Super Profits Method – Annuity Method – Capitalization Method – International treatment of Goodwill – Accounting for Patents, Trademarks, Copyrights and Know-how – Accounting for leasehold Improvements – Accounting for Research and Development – Accounting for Software Development Costs – International Treatment of Research & Development Costs

Principal Financial Statements: Requirements as to annual Accounts – Contents in Income Statements – Notes to Income Statement – Contents in Balance Sheet – Treatment of Special Items –  Depreciation – Income Tax – Dividends – Managerial Remuneration – Financial Reporting – Interim Reporting(AS) – Segmental Reporting(AS) – Related Party Disclosures (IAS) – Disclosures of accounting Policies(IAS) – Fundamental Errors and changes in Accounting Policies (IAS) – Extraordinary Items(IAS) – Events Occurring after Balance  Sheet Date (IAS) – Contingences (IAS).

Sources of Financial Information: Boards’ Report – Requirements as to Presentation of Financial Statements – Auditors & Audit Report – Audit Report Qualification.

MICROECONOMICS

Market Forces of Supply and Demand: Determinants of individual demand-Determinants of individual supply- Equilibrium price-Analyzing changes in equilibrium-How prices allocate resources

Elasticity: Determinants of price elasticity of demand-Determinants of price elasticity of supply-Microeconomic government policies-Analysis- of price ceilings-Analysis of price floors-Market efficiency

Consumer Behavior and Analysis: Utility Theory- Law of Diminishing Marginal Utility- Downward Slope of Demand Curve- Substitution Effect and Income Effect- Derivation of Market Demand- Types of Demand, Paradox of Value- Consumer Surplus, Consumer Equilibrium- Indifference Curves- Indifference Curve Analysis- Equilibrium Position of Tangency- Deriving the Demand Curve through Indifference Curve- Income Consumption Curve

The Firm and Industry Organization: Organization of the business firm-Basic types of business firms-Costs of production-Opportunity cos- explicit cost and implicit cost-Accounting cost versus opportunity cost-The production function-Fixed and variable costs-Average and marginal cost-Cost curves and their shapes-Diminishing returns and cost curves-Output and costs in the long run- Firms in competitive markets-Definition of competition-Revenue of a competitive firm-Profit maximization for the competitive firm-Accounting profit and economic profit-The competitive firm’s supply curve-The supply curve in a competitive market-Monopoly-Barriers to entry (e.g., economics of scale, government licensing, patents, control of essential resources)-How monopolies make production and pricing decisions-Public policy and monopolies-Oligopoly –Duopoly- Equilibrium for an oligopoly- Game theory and the economics of cooperation- Monopolistic competition-Price and output in competitive markets with differentiated products- Allocative efficiency in monopolistic competition

Supply and Demand for Productive Resources: Demand for resources-Marginal productivity and the firm’s hiring decision-Supply, demand, and resource prices

MACRO ECONOMICS

Measuring National Income: Concept of national-National income-accounting- Measuring national income and price, Gross Domestic Product (GDP)-components of GDP-Real versus nominal GDP, -GDP deflator-Using the GDP deflator to derive real GDP- The consumer price index-Problems with GDP as a measure of national product

Economic Growth

Main factor of economic growth-saving rate/capital- Theory of economic growth-Capital accumulation and economic growth-Technological innovation and economic growth- Business cycles- Theory of exogenous business cycle- Theory of endogenous business cycle- Population growth- Human resources and economic growth- Physical capital-6.3 Human capital-Technological progress-Institutional environment (e.g.- property rights, political stability, competitive markets, stable money and price, an open economy, moderate marginal tax rates).

Economic Fluctuations and Unemployment: Descriptive terms in business cycle analysis- Index of leading economic indicators-Types of unemployment- Problems of measuring unemployment

Equilibrium in the real market: Consumption-Consumption function-Investment-Investment function-Government expenditure- Government revenue and Expenditure- Effect of government expenditure and tax on national income- Government expenditure and crowding-out effect- Equilibrium relationship in the good/service market: IS curve

Aggregate Demand and Aggregate Supply: The aggregate demand curve-Reasons for downward sloping aggregate demand curve (e.g., wealth effect, interest rate effect, exchange rate effect)-Shifts in the aggregate demand curve-The aggregate supply curve- Short-run aggregate supply curve, Long-run aggregate supply curve- Shifts in the short-run aggregate supply curve

Equilibrium in the Money Market:  Demand for Money- Equilibrium relationship in the monetary market-LM Curve- The Monetary System-Roles of Central Bank- Tools of money control-open market operations- reserve requirements- Discount rate- Inflation: Causes and Consequences Causes of inflation- Quantity theory of money- Fiscal/monetary policy and business cycle-deflation/stagflation The influence of monetary policy on aggregate demand-Money supply and money demand Transmission of monetary policy-Unanticipated expansionary monetary policy- Unanticipated-restrictive monetary policy- Timing of monetary policy-Anticipated monetary policy-The influence of fiscal policy on aggregate demand- fiscal/monetary  policy and business cycle- Monetary policy-Target of monetary policy-Instruments of monetary policy-Transmission effect of monetary policy on real economy -Fiscal policy and the crowding-out effect

Open Macro Economics

Balance of payments-Current-account transactions- Capital-account transactions-Government’s intervention and money supply- Determination of equilibrium in the open economy -Open macroeconomics model, effect of fiscal policy, effects of monetary policy.

GROUP B

Basics of Mathematics, simultaneous equations, permutations and combinations. Calculus. Interpolation and Extrapolation, Descriptive statistics. Index Numbers. Time Series. Linear Programming - The Graphical and Simplex Methods Linear programming and applications; Role of IT in Modern Business Enterprise - applications and Enterprise resource planning; Probability – Concepts, Rules, Unconditional and Conditional Probability, Bayes’ Theorem. Decision Theory, Random variables and Probability Distribution. Sampling, Sampling Distribution, Central Limit Theorem. Statistical Inference-Point and Interval Estimation,  Hypothesis Testing; Tests of Independence and goodness of fit, Analysis of Variance;  Simple and Multiple Regression Analysis and Applications; Quality Control: Statistical Process Control, , R & P Charts; Simulation.

Goals of Corporate Finance, Forms of business organization,  Role of financial managers, Present Value and Future Value concepts, Required return and cost of capital, Cost of different sources of capital, WACC & MCC, Capital Structure Theories,  Dividend Policy, Financial/Business Risk in terms of financial/ operational/combined leverage. Need for working capital, components of working capital, Short-term Financing Decision, Cash Management, Short-term lending and borrowing, Estimating and Discounting the Project (Investment) Cash Flows, Capital Investment Decision and Investment Criteria, Managing foreign exchange exposure, Foreign project appraisal, Mergers & Acquisitions, Current Developments.

GROUP C

Financial Systems and Financial Markets – Financial sector reforms (banking, insurance and capital markets); Investment Scenario; Credit Markets (including micro credit); Globalization of Financial Markets; Money Markets – Role, Money Market Instruments and Features, Regulatory Framework; Call Money, Treasury Bills, Commercial Paper, Certificates of Deposit, Bill Financing; Debt Markets - Gilt-edged Securities Market, Repurchase Agreements, Public Deposits, Capital Markets - Primary and Secondary Markets, Trading Mechanism, Clearing and Settlement Procedures, Regulation of capital Markets. Bonds with Warrants and Embedded Options - Convertible Bonds, Callable Bonds, Floating Rate Notes, Dual Currency Bonds; Derivative Markets – Forward Rate Agreements, Futures, Options, Swaps, Commodities,  Clearing & Settlement  Mechanisms, Regulatory  frame work; Globalization of Financial Markets, Foreign currency Markets - Option Forwards, Swaps,  Exchange Control in India, Dealing Room Operations; Real Assets, Mutual Funds, Pension funds, Hedge funds,  Integration of financial markets  and Inter-linkages among various markets. Current Developments.

Introduction to Financial Statements, Framework of Financial Statement Analysis, Introduction to USGAAP, IAS , AS and Sarbanes Oxley Act, Ratios, Common size statements, Time series,  Quality of Earnings, Earnings Management, Analysis of Income Taxes, Impact of changes in tax rates Analysis of Financing Liabilities, Changes in Interest Rates on the Market Value of Debt Analysis of Leases & Off Balance Sheet Assets & Liabilities, Analysis of Pensions and Other Employee Benefits, Employee stock compensation plans Analysis of Inter-Corporate Investments, Analysis of marketable securities, Analysis of Business Combinations, Methods for Inter corporate investments, Methods and procedures for consolidation, Accounting for Special Purpose Entities, Accounting Analysis of Multinational Operations, Foreign currency translation, Analysis of foreign currency disclosures.

GROUP D

Equity Securities and Markets, Types of equity securities, International investing, Equity Risk Definition and Measurement including Single factor models and Multi-factor models, Organization and Functioning of Securities Markets, Buying and selling securities, Security Market Indices and Benchmarks. Fundamental Analysis, Analysis of world security markets, Industry analysis and Company analysis, Theory of valuation, Valuation of stock market series, Approaches to equity valuation, Special Applications of Fundamental Analysis. Technical Analysis. Current Developments.

Debt Securities - Provisions for paying off bonds, Valuation and duration; Risks Associated with Investing in Bonds; Global Bond Sectors and Instruments - Municipal securities, Corporate debt instruments; Yield Spreads - Treasury yield curve, Measuring yield spreads, Effect of issue size/liquidity on spreads; Introduction to the Valuation of Debt Securities, Arbitrage-free valuation approach; Yield Measures, Spot Rates, and Forward Rates; Measurement of Interest Rate Risk. The Term Structure and Volatility of Interest Rates - Yield curve shifts, Measuring yield curve risk; Valuing Bonds with Embedded Options - The Binomial Model; Mortgage-Backed Securities - Securitization, Non-agency and Commercial mortgage-backed securities; Asset-Backed Securities - Valuing Mortgage-Backed and Asset-Backed Securities - Cash flow yield analysis, Zero-volatility spread, Monte Carlo simulation model and option-adjusted spread; Assessing Trading Strategies; Principles of Credit Analysis; Fixed income portfolio management strategies. Current Developments

GROUP E

Derivative Markets and Instruments- Purposes of derivative markets, Elementary pricing principles, Sources of risk; Forward Markets and Instruments- Structure of global forward markets,  Credit risk in forward contracting, Types and characteristics and, Valuing forward contracts, Forward contract strategies; Futures Markets - Structure of global futures markets, Contract types and characteristics, trading mechanics, Valuation and  Applications of futures. Options Markets- Structure of global options markets, Valuing options, Option pricing  models, Volatility and related topics; Managing an option portfolio, Option trading strategies, Exotic options; Swaps Markets- Structure of global swaps markets, Types and characteristics of swaps, Valuing swaps, Swap strategies, Managing swap credit risk, Forward swaps and swaptions; Asset-based securities - Types of underlying assets, Cash flow characteristics, Credit enhancement, Valuation methodologies. Current Developments

Introduction to Portfolio Management, Investment Policy, Objectives, Models of Individual Investors Capital Market Expectations, Key macroeconomic factors, Macro valuation model of Asset Allocation, Asset allocation Techniques, practice and performance Capital Market Theory, Markowitz Portfolio Theory , CAPM Application of CML and CAPM Portfolio Analysis, Risk of a portfolio , Measures of risk Value at Risk, Calculation of VaR Optimal Portfolio Selection, Efficient Set Theorem , Feasible Set Other Models, Portfolio Revision Techniques, Measuring Portfolio Performance. Equity Portfolio Management, Alternative hypothesis, Passive management, Active Management, Styles, Strategies, High E/P ratio effect, Debt Portfolio Management Strategies, Derivatives in Portfolio Management, Managing a Property Portfolio, Management of Individual Investor Portfolios, Management of Institutional Investor Portfolios, Pension Plan and Employee Benefit Funds, Endowment Funds and Foundations, Real Estate and Alternative Investments in Portfolio Management, Firm wide risk management. Current Developments.

GROUP F

The Concept and Role of Mutual Funds, Fund Structure and Constituents, Rights and responsibilities of AMC directors, trustees, Legal and Regulatory Environment, Offer Document, Fund Distribution and Sales Practices, Investor Services, Investment Management, Measuring and Evaluating Mutual Fund Performance, Helping Investors With Financial Planning, Recommending Financial Planning Strategies To Investors, Selecting the Right Investment Products for Investors, Helping Investors Understand Risks In Fund Investing, Recommending Model Portfolio and Develop a Model Portfolio-Fund Selection, Business Ethics for Mutual Funds, Investment Strategies of Mutual Funds Investors, Future Scenario of Mutual Funds Industry with special reference to India.

Types of Other Funds:- Hedge Funds, Pension Funds, Venture Funds, Endowment Funds, Private Equity Funds, Insurance Funds, Employee retirement Funds. Measuring and evaluating performance of other funds with special reference to India, Current Developments.

Introduction, Code of Ethics, Knowledge of the Law, Independence and Objectivity, Integrity of Capital Markets, Duties to Clients, Duties to Employers, Investment Analysis, Recommendations, and Actions, Conflicts of Interest, Disciplinary sanctions for violations, Soft Dollar Standards, Research Objectivity Standards, Standards and guidelines for various professionals in Financial Markets. Various Scams in Financial Markets.

Integrated Case Studies: For assessing the conceptual clarity and application skills of the candidates in the subjects they studied in this program. A sample list of cases includes: Unit Trust of India: Building the Trust, Steel Authority of India Limited, Tata Consultancy Services, Financial Restructuring at GSK India, BPL Communications, Associated Cement Companies Limited.