Institute of Actuaries of India: Subject CT2 - Finance and Financial Reporting For 2018 Examinations
Institute of Actuaries of India: Subject CT2 - Finance and Financial Reporting For 2018 Examinations
Institute of Actuaries of India: Subject CT2 - Finance and Financial Reporting For 2018 Examinations
Subject
CT2 – Finance and Financial
Reporting
Subject CT2
Finance and Financial Reporting
Core Technical
Syllabus
1 June 2017
Subject CT2 – Finance and Financial Reporting Core Technical
Aim
The aim of the Finance and Financial Reporting subject is to provide a basic understanding of
corporate finance including a knowledge of the instruments used by companies to raise finance and
manage financial risk and to provide the ability to interpret the accounts and financial statements of
companies and financial institutions.
Subject CT1 – Financial Mathematics: uses this subject to provide a grounding in financial
mathematics and investments.
Subject CA1 – Actuarial Risk Management: develops some of the concepts introduced in this subject.
Subjects ST5 – Finance and Investment Specialist Technical A, ST6 – Finance and Investment
Specialist Technical B, SA5 – Finance Specialist Applications and SA6 – Investment Specialist
Applications: develop the technical and practical applications of topics introduced in this subject.
Objectives
(i) Demonstrate a knowledge and understanding of the principal terms in use in investment and
asset management.
1. Outline the relationship between finance and the real resources and objectives of an
organisation.
(iii) Describe the structure of a joint stock company and the different methods by which it may be
financed.
Page 2
Subject CT2 – Finance and Financial Reporting Core Technical
• hire purchase
• credit sale
• leasing
• bank loans
• bank overdrafts
• trade credit
• factoring
• bills of exchange
• commercial paper
4. Explain the different systems of company taxation from the points of view of an
individual shareholder and the company.
(v) Demonstrate a knowledge and understanding of the characteristics of the principal forms of
financial instrument issued or used by companies and the ways in which they may be issued.
1. Outline the reasons a company might have for seeking a quotation on the stock
exchange.
• debenture stocks
• unsecured loan stocks
• Eurobonds
• preference shares
• ordinary shares
• convertible unsecured loan stocks
Page 3
Subject CT2 – Finance and Financial Reporting Core Technical
• financial futures
• options
• interest rate and currency swaps
• scrip issue
• rights issue
(vi) Discuss the factors to be considered by a company when deciding on its capital structure and
dividend policy.
1. Describe the effect that the capital structure used by a company will have on the market
valuation of the company.
3. Discuss the principal factors that a company should consider in setting dividend policy.
5. Discuss the effect that the dividend policy will have on the market valuation of a
company.
Page 4
Subject CT2 – Finance and Financial Reporting Core Technical
(vii) Define what is meant by a company’s cost of capital and discuss how its cost of capital
interacts with the nature of the investment projects it undertakes.
4. Discuss the issues in establishing the required rate of return for a capital project.
(viii) Describe the major types of financial institution operating in the financial markets.
1. Describe the main features of the following institutions and analyse their influence on
the financial markets:
• central banks
• investment exchanges
• investment banks
2. Describe the role played in financial markets by each of the following institutions:
• clearing banks
• building societies
• investment trusts
• unit trusts
• investment management companies
• self-administered pension funds
• life insurance companies
• general insurance companies
(ix) Describe the basic construction of accounts of different types and the role and principal
features of the accounts of a company.
1. Explain why companies are required to produce annual reports and accounts.
2. Explain the fundamental accounting concepts which should be adopted in the drawing
up of company accounts.
Page 5
Subject CT2 – Finance and Financial Reporting Core Technical
6. Explain what is meant by the terms subsidiary company and associated company.
10. Explain the function of the following accounts – share capital, other reserves and
retained earnings.
(x) Interpret the accounts of a company or a group of companies and discuss the limitations of
such interpretation.
2. Calculate and explain interest cover and asset cover for loan capital.
3. Describe the possible effects of interest rate movements on a highly geared company.
4. Calculate and explain price earnings ratio, dividend yield, dividend cover and EBITDA.
• profitability
• liquidity
• efficiency
9. Discuss the ways that reported figures can be manipulated to create a false impression
of a company's financial position.
Page 6
Subject CT2 – Finance and Financial Reporting Core Technical
(xi) Show how financial techniques can be used in the assessment of capital investment projects.
1. Discuss the principal methods that may be used to determine the viability of a capital
project.
2. Discuss the factors underlying the choice of discount rate within project assessment
including:
• the assumptions and limitations in the use of the weighted average cost of capital
• the allowance for leverage
• the allowance for risk.
3. Discuss the methods that may be used for identifying the risks that may be present for
different types of project.
5. Discuss suitable techniques for ascertaining the distribution of the possible financial
outcomes of a capital project.
END OF SYLLABUS
Page 7